BM Short Notes (PBP)
BM Short Notes (PBP)
BM Short Notes (PBP)
Muhammad Asif
Updated &:
Presented by :
Faraz Ahmad
Syed Atif Hassan Abidi
PREFACE
The Examinations of ICAP are a demanding test of students ability to master the wide
range of knowledge and skills required of the modern professionals. Subject of Business
Management is one of the efforts made by ICAP in this context for enhancing students
knowledge about detailed overview of effective management of businesses.
The best and recommended book for this subject is Study Text by PBP that covers each
and every area of syllabus in extraordinary detail. The basic problems faced by the
students in going through PBP are its size and the language used. Students who are new
to this subject have to spend most of their precious time in understanding the theme
conveyed in any chapter. Moreover students feel it very hard to revise the complete
course near or on the exam day.
For these reasons there arise needs to have some short and easy to revise notes for this
subject that covers the extent of PBP in a concise form. For this purpose we used short
notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
will help you all.
I would suggest that first of all you should read BM from PBP and afterwards you may
consult these notes for revision purposes. An Annexure has been given at the end of this
booklet to help you deciding how you can use this booklet in combination with PBP.
May ALLAH bless you with success in every exam of both lives.
Thanks
Talib e Doa
Syed Atif Hassan Abidi
Faraz Ahmad
March 31, 2009
External
o Society
o Organized groups
Nature of business
o Market situation and conditions
o Products of company
o Technology used
Organizations Culture
o Organizational system and structure
o Leadership style
o Organizations history
o Organizations founder
Economic objectives
Social responsibility
Environmental conditions affecting Strategic Planning:
1. Resources (mineral)
2. Disaster
3. Logistics
4. Government
Environmental Management Accounting is a solution: examples are
1. Eco Balance
2. Cleaner Technology
3. Lifecycle assessment
4. Performance appraisal
5. Budgetary planning and control
6. Corporate liabilities (a factor in PERT)
Characteristics of Strategic Decision:
Scope:
Overall long-term direction.
Matching:
Matches activities to environment & resources capability.
Affect:
Affected by values, beliefs and powers of people in organization. & Affect operational decisions.
Implications for change.
Complex in nature.
Allocation or reallocation of resources.
Strategic Financial Management:
It is identification of strategies able to maximize NPV and to allocate scarce resources, and implementing and
monitoring of such strategy.
Financial management decision: (Also see end of chapter 9)
Financial objectives:
Non financial objectives:
Service provision.
Others are
Welfare of Society
o Profit retention.
Welfare of Management
o Sales growth.
Welfare of Employees
Government organizations:
External Financing Limit.
To create Value for Money, funds must be applied Economically, Efficiently and Effectively.
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Broad Target
Niche Focus
Lower Cost
Cost Leadership
Cost Focus
Differentiation
Differentiation
Differentiation Focus
(for luxury goods)
Differentiation is creating value through uniqueness. It could be at following levels of product i.e.
1.Actual Product
a). Features.
b). Quality level.
c). Design.
d).Brand name
e). Packaging.
2. Augmented Product
i. Delivery and credit
ii. Warranty
iii. Installation
iv. After sale service
Cost Leadership is having lowest cost of producing. It could be achieved by:
Mass Production (economies of scale)
Latest Technologies
Favorable access to raw materials
Automation
Minimizing overhead by exploiting bargaining power
Constantly improving efficiency and economy e.g. through value chain analysis
Focus involves a restriction of activities to only part of the market (a segment) through
Providing goods/services at lower cost (Cost focus)
Providing a differentiated product/service (Differentiation focus)
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Differentiation strategy
Reduces direct competition.
Customer loyalty is entry barrier.
Brand loyalty is weapon.
Low price sensitivity.
Supplier may raise prices but higher
margin offsets it.
Present Market
New Market
Present Product
Market Penetration
Market Development
New Product
Product Development
Diversification
Unrelated
Diversification
Forward
Vertical
Related
Growth
Backward
Horizontal
Organic Growth
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Physical
Economical
Political
Financial
Business
Product lifecycle
Accounting for Risk:
Required rate of return, adjusted by
Return %age
Payback period
Rule of Thumb (best estimate of value within worst to best possible range)
Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is)
Budgetary Control
Control:
Control is comparing actual results with planned performance and taking appropriate actions
Control Cycle
1. Actual results are recorded and analyzed for each responsibility center.
2. Feedback is reported to management.
3. Management compares actual results with plans or targets.
4. Do one of three things
i. Decide to do nothing
ii. Take control actions
iii. Alter the plan or target
Feedback:
The process of reporting back control information to management and the control information itself
It may be Single Loop or Double Loop.
It may be Positive or Negative.
Feed forward Control:
Actual results are compared with Budgeted (i.e. adjusted by past results)
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Cost Center
Controllable cost
Profit Center
Controllable cost
Sales Price
Sales volume
Principal
measures
Variance analysis
Profit
performance
Investment Center
Controllable cost
Sales prices
Sales volume
Investment in fixed and
current assets
Return on investment and
residual income
Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time
span.
Controllability of fixed cost:
Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)
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Generic strategies
7. Differentiating Product/Service
8. Increasing Cost efficiency
9. Decreasing Supply Cost.
o
o
o
Strategic analysis
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2.
3.
4.
5.
6.
7.
8.
Strategic Management is to control and shape/craft these emergent strategies as they arise.
Intended
Strategies
Deliberate
Strategies
Realized
Strategies
Unrealized
Strategies
Patterns of
behavior
Unexpected
Contingencies
Emergent
Strategies
Manage stability
o Implement, not just plan
o Obsession to change is dysfunctional; know when to change
Manage patterns
o Detect patterns and help them shape; grow positives and eliminate negatives.
Crafting strategy---- requires natural synthesis of past, present and future. (reconcile change and continuity)
Mintzbergs 8 styles of strategic management:
1. Planned strategies (imposed by central leadership, large no. of controls, precise intentions)
2. Imposed strategies (imposed by environment e.g. influential customers)
3. Ideological strategies (collective vision of organizations members, shared values)
4. Umbrella strategies (ends are defined, means are emergent, target based)
5. Disconnected strategies (members mind their own business, strategies are deliberate for sub-units but
emergent for organization)
6. Consensus strategies ( groups shares common patterns)
7. Entrepreneurial strategies (visioned from strong leadership)
8. Process strategies
Mintzbergs 5 ways to describe strategy:
1. Plan
- consciously intended course of action
2. Ploy
- a competitive game (e.g discouraging competitors to enter)
3. Pattern
- ideas of emergent strategies
4. Position
- environmentally fit & relationship with other organisations
5. Perspectives
- approach towards world
Strategy and managerial intent: (Johnson and Scholes) not emergent
The Command view:
Strategy develops through the direction of an individual or group, but not necessarily through formal
planning.
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Paradigm (basic assumption and beliefs common in organizations decision makers) is inhabitant and
conservative than culture.
Double loop learning is where purpose is also reviewed. (derived from control theory)
Future will change incrementally
Future Orientation: (Hamel and Prahalad)
Future will be radically different
Competitors
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Ecology Model:
Organisations environment changes radically, it will only survivor if it adopts its environment and evolves i.e finding
niche areas which provide both demands for output and resources to be used as input to the system.
Pattern and Competencies: (Andrew)
Experience
Quality of co-ordination
Success business strategies result not from rigorous analysis but from a particular state of mind.
Competitive strategy:
A strategy by which a firm can have significant ground on its competitors at an acceptable costs
Competitive Advantage:
Re-adjust current resources
Relative superiority
Challenge assumptions
Degree of freedom
Realised Strategies
Intended or planned strategies
Emergent strategies
- not planned
- not fore throught
- not the result of management intentions
- caused by pattern of behavior
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o
o
Corporate appraisal is assessment of SWOT in relation to internal (SW) and external (OT) factors affecting
organization to establish long term plans.
OT Analysis---Analyzing external broad environment:
Social factors
Legal factors
Economic factors
Political factors
Technical factors
What Social factors affect:
Demographic change
Why social factors are considered:
Stakeholders are members of society--assessment of their values and beliefs
Good (ethical) reputation
Avoid restrictive legislation
Change = opportunities
Legal factors:
o Health and safety legislation
o Employment laws
o Environmental legislation
o Information about performance.
Economic key forces affecting organizations:
Economic Growth
Availability of Credit
Inflation Rates
Govt. fiscal policies (taxation, govt. spending, borrowing and repayment) and monetary policies (control of
money demand and supply through rates)
Govt. Subsidy
Unemployment rate
International economic issues:
o Extent of protectionist measures
o Comparative rates of growth, inflation, wages and taxation
o The freedom of capital movement
o Exchange rates
o Economic agreements
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Exchange rate is the rate at which a national currency exchanges for other national currency.
Determinants are:
Demand and supply of currencies in foreign exchange market (Floating exchange rate)
Govt. (Fixed exchange rate)
Synthesis of above two (Managed exchange rate)
Types are:
Political factors:
Type of Govt.
Stability of Govt.
Amount of bureaucracy
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Strategic Intelligence:
Strategic Intelligence is the knowledge of business environment, which enables an organization to anticipate changes
and design appropriate strategies that will create business value for customers and profit for co.
Process of creating strategic intelligence:
Sensing (Identify appropriate external indications of change)
Collecting (Gather information in ways that ensure it is relevant and meaningful)
Organizing (Structure the information in the right format)
Processing (Analyze information for implication)
Communicating (Package and simplify information for users)
Using
(Apply strategic intelligence)
Sources for strategic intelligence = Sources of information
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Marketing
Is market and share
increasing?
Finance/Accounting
Sufficient working
capital?
Operation
Production capacity
R&D
Adequate R&D
facilities?
Segmented
effectively?
Economies of scale
Outsourcing is
cost effective?
Channel of
distribution reliable
and cost-effective?
Return on investment
& Cost of capital
Are R&D
resources allocated
effectively?
Communication
Conduct market
research?
Effective budgeting
process?
Inventory control
policies and
procedures,
effective?
Is machinery
technically updated?
Labor relations
Product priced
appropriately?
Accounting ratios,
strong or weak?
Is equipment in good
condition?
Communication
between R&S and
other units?
Are present
products
technologically
competitive?
Turnover and
absenteeism
Training provided?
Under or over
staffing?
Continuous
improvement?
Effective
promotion?
Quality control
policies and
procedures,
effective?
Brand strength
Products
Product quality and brand reputation
Age and life of products
Price elasticity of demand
Margin and contribution
HRM
Efficient Or
experience
manpower
Recruitment and
Training
MIS
Is IS updated
regularly?
Contribution by all
functional
managers?
Effective
passwords for
entry?
How much
expensive?
Stocks
Sources of supply
Turnover periods
Storage capacity
Obsolescence and deterioration
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Fixed costs
Variable costs
-------------------------------------Directly attributable costs
Shared general overheads
-------------------------------------Controllable costs
Uncontrollable costs
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Vision:
Where the organization wants to be
Advantages of vision:
gives general directions to organisation
gives hope and motivation
establishes scope and boundaries
enables flexibility in choice
Problems with vision
Mission Statement:
This is a statement purpose of existence-What it wants to accomplish in the larger environment.
Mission statement includes Purpose, Competence, Strategic Scope, Product, Targeted customers, and Values of
various stakeholders.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees.
Place of mission statement:
Annual reports
Publicity materials
In chairmans office
Communal work area
Elements of mission statement:
Purpose ( e.g creating wealth, satisfy shareholders)
Strategy ( e.g logic, product, service)
Scope
Politics & behaviors
Values & culture (e.g commitment)
Characteristics of mission statement:
Bravity
Flexibility
Distinctiveness
Problems with mission statement:
Ignorance in practice
Only for public showment and not for internal decision making
Only rationalising existence of organisation
Wish list, full of generalisations
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Functions/Importance of mission
1. Employee motivation
2. Contributes to profitability
3. Focus for strategic decision making
4. Replaces national or divisional subculture with a corporate culture
5. Communicates nature of organization to insiders and outsiders
Problems with mission = Problems with Rational model of Strategic Management
Goals:
Goals could be
Objectives (quantifiable)
Aims
A goal must be SMART.
S
M
A
R
T
Goals
Specific
Measurable
Attainable
result-oriented
time-bounded
Operational goals
Non-operational goals
Measurable
not measurable
Corporate level
SBU level
Operational level
Corporate level objectives: (trade off between objectives)
1. Profit (Accounting Profit = Economic Profit = Sale price Explicit Cost Implicit Cost i.e. Opportunity
Cost)
2. Market share and growth
Objectives
3. Cash flow
4. Customer satisfaction
Primary
Secondary
5. Quality of product
6. Industrial relations
Long-term
Short-term
7. ROCE
8. EPS
Unit Objectives:
Commercial sector
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Goal Congruence
Trade off between objectives:
Primary and secondary objectives:
State of individuals to take actions which are in their own interest and also in
best interest of organization.
[One at expense of other.]
[Based on importance.]
Stakeholders
Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
Stakeholder
Shareholders
Lenders
Trade creditors
Employees
Retailers
customers
Management
Society
Govt.
and
Objectives
To maximize wealth
Timely payment
High prices
High wages
Job security
Job satisfaction
Continued supply
Quality products
SHE Issues
Level of employment
Taxes
Legislation compliance
2 approaches to stakeholders:
1.
Strong view (To balance all stakeholders is important)
2.
Weak view (Primary objective is profit, stakeholders are satisfied indirectly)
Stakeholders mapping: (Mendelow)
High Interest
Key Players
High
Low Interest
Pessimist
Organizations Culture
Culture/Organizations Culture:
Culture is sum total of belief, knowledge, attitudes, norms, customs, values and peculiarities that prevail in a society/
an organization.
Influences on organizations culture:
Organizations founder
Organizations history
Leadership and management style
Structures and Systems
Levels of Culture:
There are 3 levels of culture in an organization:
1. Basic, underlying assumptions (guide the behavior of individuals and groups in organization)
2. Overt beliefs (expressed by organization and its members)
3. Visible artifacts (e.g. style of offices, display of trophies etc.)
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Theories on Culture
Harrison and Handys Work:
(gods of management)
There are 4 types of culture in organizations:
i) Power Culture (Zeus)
No dominant leader
Organization has formal structure and well established rules and procedures
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Take initiatives
e.g. designers
3. Analysers
e.g. managers
4. Reactors
Stable environment
Changing
environment
High risk
Low risk
Slow feedback
Bet your company Culture
Slow and steady wins the race
Stamina required
Risk management
Fast feedback
Hard Macho Culture
Find a mountain and climb it
Entertainment,
Advertisement, Consultancy
Work hard/Play hard culture
Find a need and fill it
Team spirit
Computer companies
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Speed
Productivity
Expansion
Risk taking
Weak areas in a dynamic company
Customer service
Innovation
Technology
Attitude to workforce
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Payment Methods
Cash Purchase
Share exchange
Use of convertible loan stock
Earn out arrangements
Methods are affected by
Availability of cash
Desired level of gearing
Changes in control
Changes in structure
Choice of Cash or Paper offer or Both for payment depends on view of parties:
Acquiring company and its shareholders:
If purchase consideration is in debentures (or cash borrowed elsewhere), it will be cheaper because Interest
will be allowable for tax purposes and earnings will not be diluted.
Issue of additional loan stock will be unacceptable for parties if company is highly geared.
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5.
6.
7.
Joint Ventures
Joint ventures: (1st step of acquisition)
It is an arrangement where two or more firms join forces for manufacturing, financial and marketing purposes and
each has a share in both equity and management of business
Advantages:
Joint contribution of
o Production technology
o Corporate expertise
o Market knowledge
Access to foreign markets
Eliminating competition
Cheaper than internal expansion
Spread risk
Suitable for smaller companies
Problems:
Conflict of interests
Where profits will go (in resident company or shareholders of foreign company)
Local partners may wish to export to other countries where foreigner is already supplying.
Transfer pricing issues (on transfer of expertise, technology and components)
Cultural differences e.g.
Commercial practices
Strategic Alliances
Strategic Alliance:
When two or more firms agree to work together to exploit common advantages
e.g. alliance between national airlines to cross-book passengers.
Licenses
Licenses are very similar to Franchising in their financial aspects, however degree of central control and support is
usually less.
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Franchising
This gives limited right to franchisee (e.g. in a geographical area) to exploit patent product or production process,
brands, manufacturing know how and/or technical advice and assistance. e.g. KFC, McDonald
Mechanism:
Franchiser grants permission.
Franchisee pays for permission and assistance.
Franchisee is responsible for day to day running of franchise.
Franchiser may impose Quality Control Measures to ensure that goodwill is not damaged.
Franchisee supplies capital, personal involvement and local market knowledge.
Benefits to Franchiser:
Rapid expansion (franchisee provides capital).
Local knowledge.
Economies of scale.
Problems to Franchiser:
Limited control over quality.
Conflicts of interest.
Franchisee may become competitor.
Strategic
Tactical
Operational
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Investment
Selection of products and markets
Required level of profitability
Fundamental fixed assets
Efficient and effective use of
resources
Pricing
Working capital management
Financing
Target debt/equity mix
Dividend
Capital growth or
high dividend payout
Scrip
or
dividend
Working
management
capital
cash
------
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Downsizing
Divestment- (selling of business)
Divestment is a proportional or complete reduction in ownership stake of an organization e.g.
Demerger
Sell off
Liquidation
Spin off
Management Buy Out (MBO)
Privatization
Reasons for Divestment:
Liquidity problems
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Disadvantages of De-Merger
Loosing economies of scale
Lower turnover
Higher overhead cost
Less ability to raise finance
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Personal ethics
professional ethics
Organisation
Org. culture
Org. System
Gifts
Honesty in advertisement (e.g Marketing ethics)
Competitive behavior (e.g putting others to competitive disadvantage)
Ethical systems in an organization:
Personal ethics
(e.g religious, political, personality ethics)
Professional ethics
(e.g CA code of ethics, medical ethics, fit and proper criteria)
Organization culture (e.g. customers first)
Organization system (ethics must be contained in formal code e.g part of ethical sys. and mission
statement)
2 approaches to manage ethics:
Compliance based approach aims to remain within letter of law by establishing system of audit and review so that
violations are prevented, detected and punished. It works from outside the system.
Integrity based approach combines a concern for the law with an emphasis on managerial responsibility. This
approach incorporates ethics in organizations culture in which managers will do the right thing e.g shared
accountability, sound behavior, defining values. It works from within the system
Whistle blowing:
It is the disclosure by an employee of illegal, immoral or illegitimate practices on part of the organization.
Four types of ethical leaderships in organisations:
i) Creative
:reflecting founder, such leaders create ethical style.
ii) Protective
:they sustain value of customer services
iii) Integrative
:aim through consensus through people
iv) Adaptive
:changing culture as per new environment
Social Responsibility
Objectives of a company:
Economic objectives
Social/Ethical objectives
Boundaries
(Imposed rules; they restrict managements freedom of action)
Responsibilities (Voluntarily undertaken obligations e.g. charities)
Social/Ethical objectives of a company:
SHE Issues
(e.g minimum wages, job security)
Good employer
(e.g good working environment, job satisfaction)
Good Public image
(e.g good quality products)
Society well being
(e.g regular order and timely payments to suppliers)
Pollution
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Public relations.
- Audit
- Review
- Questioning
- System for employees
- Disciplinary procedures (lawyers)
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- Internal commitment
- Guiding values
- Pattern of thoughts
- Share accountability (managers)
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Behavioral
Structural
Agency Problem:
Arises from separation of ownership from management.
Goal Congruence: (solution for agency problem)
It is accordance between objectives of agents (acting within organization) and objectives of organization as a whole.
Via (e.g.)
Profits related pay e.g. bonuses, commission, incentive etc.
Rewarding managers with shares
Executives Share Option Plans
Non-executive directors are directors not running the day to day operations of the company.
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Job Analysis
HR Planning
Recruitment
Selection
Retirement, Resignation, Redundancy
HR Development:
Performance Appraisal
Career Planning
Training
Development
Motivation/ (Individuals):
Job Analysis and Design
Pay and Promotion
Leadership and Groups:
Creating effective teams
Managing conflicts between teams
Other Aspects:
Health and Safety
Workforce diversity (Equal Employment Opportunity)
Maternity
Compliance with legal and other standards
Personnel record and Information System
Necessity of separate HR Department depends on Size and Activities of organization.
Objectives of HRM:
Cooperative Relationships
Increase in Productivity
Increase in initiative
Decrease Absenteeism
Lesser conflicts
Increase quality
Increased co-operation
Increased commitment
HRM Theories
Scientific management
Human Relation
Rational
Contingency theory
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Views of HRM:
Traditional Odd Job view
It is a collection of incidental techniques without much
internal cohesion (Drucker)
Manager was partly a Clerk, housekeeper, social worker
and fire fighter.
It dealt mainly with Hiring and Firing.
Reactive and defensive role
Employees Consent was obtained.
Motivation,
HR Planning
Human Resource Planning:
HR Planning is forecasting demand of human resources, forecasting its supply and closing gap between demand and
supply
It considers When employees needed. How many employees needed. So basically HR Plan deals with recruitment,
retention, downsizing & training of workforce.
Process of Human Resource Planning
1. Strategic Analysis (of)
a. Environment
b. Organizations objectives
c. Manpowers SWOT
2. Job Analysis
a. Job description
b. Job specification
c. Employee specification
3.
4.
Forecasting of
a. Internal Demand and Supply
b. External Supply
Implementation
a. HR Plan
Job Analysis
The process of collecting, analyzing & setting out information about the contents of job in order to provide basis for job
description and data for recruitment, training, job evaluation & performance management.
Systematic way to gather and analyze information about the
Content
Context
Human requirements of the job.
Type of information needed
Performance criteria
Responsibility
Accountabilities
Organizational factors
Development factors
Environmental factors
Job analysis results in:
Job description
Job specification
Employee specification
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Job Description
A written statement of duties, responsibilities and tasks of job.
It should be written in outputs and performance levels.
Purpose of Job description:
Organizational--------- Defines jobs place in organizational structure (job evaluation).
Recruitment------------ Provides person specification
Legal-------------------- Provides basis for contract of employment
Performance----------- Performance objectives can be set.
Contents of Job description:
A job description should be a formal, written document, usually from one to three pages long. It should include the
following:
Date written.
Position title.
Career mobility (position[s] for which job holder may qualify next).
Alternative to Job Description is Role Definition. (wider)
Job Specification
Minimum acceptable qualification (i.e. knowledge, skills, abilities, experience and other characteristics needed to do a
particular job.)
Person Specification
Identifies the type of person needed to do a particular job.
Following characteristics are assessed: (Frasers 5 point to assess pattern of personality)
1. Impact on other
2. Motivation
3. Acquired knowledge or qualification
4. Innate ability (initiative, innovative)
5. Adjustment and emotional balance
Competencies
Capacity of a person that leads to behavior that meets the job demands.
Results
Methods of Job Analysis:
Logos/Diaries
Interviews
Observations
Questionnaires
HR managers write job description & specification for review by managers
Managers identify performance standards based on job analysis information.
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Internal Promotions, Transfers (Redevelopment Plan) and Training (Training Plan) etc.
Restricting recruitment
Part-time working
Sources of Recruitment:
Internal Search:
1. Organizational database (HRIS) to sort employee data according to job requirement.
2. Employee referrals
3. Promotion and Transfers
Advantages:
Good employee relations
Encourages ambitious individuals
Less costly
No adjustment or orientation time required, because already familiar
i. Individual with organization and policies
ii. Organization with individual
Disadvantages:
No new blood, no innovation and new perspectives
Political fight for promotion
Morale problems of those not promoted
Diversity lacking
Requires training
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External Search:
1.
2.
3.
4.
5.
6.
Newspaper
T.V.
Net
Agencies and Professional organization
Blind Box ads
Schools, Colleges and Universities
Unsolicited applications
Creative recruitment methods
Banners
Referee
Applicants
Primary business
EEO Employer
Information about job and application process
Job location
Contact address
Experience
Employer website
Professional career websites
Advantages:
Cost saving
Time saving
Global in nature
Disadvantages:
Non-serious application
Difficult to process large number of application
Not accessible to all
Selection:
(part of Recruitment)
The process of choosing individuals who have needed qualification to fill job in an organization
Purpose of selection:
Filling a right person to the job ensuring
Person fits job (matching people with job characteristics)
Person fits organization (Objectives, culture, values etc. of organization)
Steps in selection process:
Initial screening
Employment tests
Medical examination
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Organization fit
Level of motivation
Interpersonal skills
Limitations of Interviews
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Social environment
Type of Incentives
Characteristics of Organization
Physical environment
Physical and Job variables
Methods of work
Age
Sex
Physique
Education
Experience
Intelligence
Aptitude
Motivation
Personality
Personality and individual Development:
(Individuals are different because their personality is difference and personality differences affect work behavior).
Personality is the total patterns of thinking; feeling and behaving that constitute the individuals distinctive method of
relating to the environment.
According to Chris Argyris, as people mature they display certain characteristics:
1. Increasing self awareness
2. Acceptance of equal or superior relationship to others
3. A tendency to move from dependence towards independence
4. Diversification of behavior patterns
5. An increasing tendency to activity, rather than passivity
6. Deepening and more stable interests
Factors affecting personality differences:
Authoritarinism
Self-esteem
Feedback on performance
Moderately difficult tasks
Psychological success
Commitment
Motivation
- Need of achievement
- Attitude
- controls and standard
- levels of risk taking
- challenging goals and achievement
- willingness
Motivational Theories
McGregors theory X and theory Y:
Theory X---People dislike work and responsibility, they have to be controlled, threatened, punished to
get work done.
Theory Y---Work is as natural as play and rest, they accept responsibility, they give way to consultation
and self growth.
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Top management
Entrepreneur
Achievement
Employees
Power
Affiliation
Valence
Ability
Satisfaction
Expectancy
Understanding
Actual Performance
Importance of
reward
Intrinsic rewards
(interest, enjoyment)
Success/Failure
Extrinsic rewards
(pay, bonus)
Equity theory:
Reward of 1/Output of 2 = Reward of 2/ Output of 2
Satisfaction = (atleast fair reward, not maximum reward)
people compare results and rewards
people get upset if inequity in rewards
Goal theory:
Goals can motivate.
Psychological contracts
Members will expend efforts and organization will reward them in exchange
Coercive contract (returns are inadequate compensation; involuntary contribution)
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Calculative contract
Cooperative contract
methods used in performing these tasks (training and indoctrination in organizational values), and
Job Components:
Occupation------Jobs-----------Position----------Duties------------Tasks (Responsibilities)
Job restructuring and redesign:
Job redesign
Job rotation
Job enlargement
Job enrichment
Working arrangements:
attitude and values
high performance work systems
empowerment
compressed week
part-time work
i)
ii)
iii)
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Numerical flexibility
Financial flexibility
Task flexibility
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Employee Appraisal
Appraisal is a systematic review and assessment of an employees performance
Why:
Employee Development:
Promotion
Demotion
Transfer
Termination
Organizational Research: (Importance of appraisal)
Potential review to confirm whether any management career planning is required or not.
Objectives:
Achieving objectives
Performance levels
Training needs
Identifying lacking areas
Communication
Traits
Behavior
Performance
Methods:
1. Check list appraisal (yes/no)
2. Forced choice appraisal (MCQs)
3. Essay appraisal/ Overall assessment (paragraph)
4. Grading, result oriented schemes, and self appraisals
An appraisal system:
i)
ii)
iii)
iv)
v)
vi)
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Methods of appraisal:
i) Upward appraisal
ii) Customer appraisal
iii) 360 degree appraisal
Managing Careers:
Career management is a technique whereby the progress of individuals within an organization from job to job is
planned keeping organization needs and individual capacity in mind.
Difference between Functional Manager and General Manager:
Goals
Orientation
Role
Information
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Functional Manager
Short term
Task oriented
Organizer
Defined sources
Formal channels
General Manager
Long term
Goal oriented
Facilitator
Coordinating
interdepartmental
activities
Informal channels
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Continuous improvement
Development activities:
Training (on job and off the job)
Career planning
Job rotation
Appraisal
Other learning opportunities
Benefits of training and development:
For Organization
Training supports business strategy
Higher productivity
Management of SHE issues
Less need for detailed supervision
Multi skilled people
Succession planning
Increased commitment
For employees:
Enhanced skills
Psychological benefits (valuable)
Social benefits (e.g. contact)
Job management
When training does not work:
Bad management
Poor Job design
Poor equipment
Motivation
Poor recruitment
Other characteristics of employee (e.g. intelligence)
Types of training courses:
Day release
Distant learning
Evening classes
Revision courses
Sandwich course
Full time course
Learning organization:
An organization that facilitates the learning of all its members and continuously transforms itself.
A learning organization creates, exploits and shares knowledge.
Characteristics of learning organization:
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Training Process:
Step 1. Training needs are identified:
Training need analysis
Current state
Desired state
Existing knowledge and skills
Required knowledge and skills
Individual performance
Required standard
Organizations current results
Desired results
Difference between two columns is Training Gap.
Training surveys
Corporate strategy
Attitude surveys
Job analysis
Step 2. Specify knowledge, skills and competence required:
Step 3. Define training objectives:
These objectives should be clear, specific, measurable, and observable.
Step 4. Plan training program
Step 5. Implement the training
Methods of training
Formal training
On Job Training
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Skill analysis:
Aim is to put interest into actual role.
Liking of skills
High
Low
Performance
High
Likes
and
does
well
(Motivated)
Dislikes but does well
Low
Likes but does not do well
(Requires training)
Dislikes and does not do well
Applying/testing
the implications
of concepts in
new situations
Observation
and reflection
Formation
of
abstract
concepts
and generalizations
Theorists
Observe phenomena, think about them and then choose how to act
Find learning difficult if forced into hurried program.
Tend to be fairly slow, non participative and cautious.
Reflectors
Activists
Pragmatists
Competence
Capacity that leads to behavior that meets job demands within organizational environment and brings desired results
Types of competence:
1. Personal/Behavioral (Personal characteristics and behavior required for successful performance).
2. Work based/Occupational competence: (expectation of work performance and outputs and standards that are
expected by people in specific roles)
3. Generic competence can apply to all people in an occupation.
Competence of managers:
Intellectual
i. Strategic Perspective
ii. Analytical Judgment
iii. Planning and Organizing
Interpersonal
i. Managing staff
ii. Persuasiveness
iii. Assertiveness and Decisiveness
iv. Interpersonal sensitivity
v. Oral communication
Adaptability results
i. Initiative
ii. Motivated
iii. Business sense
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Dictatorial
Autocratic
Democratic
Laissez-faire
Leadership:
Definition
Management vs Leadership
Manager VS Leader
Key leadership skills
Developing managers as leaders
Theories of leadership
i)
Trait theory
ii)
Style theory
iii)
Contingency theory
Leadership skills:
Entrepreneurship
Interpersonal skills
Decision making
Time management
Self development skills
Competitive
Goal oriented
Team empowering
motivated
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4 styles of leadership:
Style
Tell
(autocratic)
Characteristics
Manager makes decisions
and enforces them
Sell
(persuasive)
Consults
Joins
(democratic)
Strengths
Weaknesses
No
initiative
and
commitment
No
initiative
and
commitment
Country club
Low
Team
Middle road
Impoverished
Task
Low
High
Concern for production
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Discipline
Discipline promotes good order and behavior in an organization by enforcing acceptable standards of conduct.
Disciplinary problems:
Absenteeism
Poor punctuality
Poor job performance
Poor attitudes
Breaches of safety regulations
Refusal to carry out legitimate instructions
Disciplinary actions:
Informal talk
Oral warning
Written or official warning
Disciplinary lay-offs or suspension
Demotion
Discharge
Warning
Action
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Career break
Accommodate wheelchair users
Statement of principles
Training requirement
1.
2.
3.
4.
5.
6.
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Sense of identity
Loyalty to group
Team:
A team is a small number of people with complementary skills who are committed to a common purpose,
performance goals for which they hold themselves accountable
A team could be:
Multi-disciplinary teams
The Given
Groups members
Groups task
Groups environment
Intervening factors
Motivation
Leadership
Process
Procedure
The Outcomes
Productivity
Effectivity
Group satisfaction
Management can operate on both givens and intervening factors to affect the outcomes.
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There are cooperative structures to achieve common goals with no systematic conflict of interest.
The conflict view:
Conflict is seen as a useful basis for evolutionary change and not for revolutionary change.
Personality differences
Scarcity of resources
How destructive
Distract attention from task.
Objectives may be subverted for secondary goals.
Disintegration of the group
Emotional/ Win-lose conflicts may arise. (Close
competition)
Within a group:
Group becomes more structured and organized.
Members eliminate their differences, get close and demand loyalty.
Climate becomes task oriented.
Members individual needs are subordinated to achievement.
Leadership moves from democratic to autocratic with groups acceptance.
Winning group:
Cohesion
Relaxation
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Losing group:
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Growth
Specialist servicing
Key persons insurance
Corporate decline
3 types of decline:
1. Declining industries (i.e. Environment entropy; environment is no longer supportive)
Temporary decline (product revitalization)
Permanent decline (end game)
2. Vulnerability
SLEPT
Porters 5 forces
3. Declining company (i.e. organization atrophy)
Decrease in profitability
Decrease in liquidity
Lack of planning
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Increase in gearing
Top management fear
Change in senior executive
Financial engineering (change in accounting policies, auditors etc.)
Restriction on dividend policy
Inaction/Hidden crisis
Faulty action/Disintegration
Crisis/Collapse/Dissolution
Causes
Poor management
Poor financial controls
High cost structure
Poor marketing
Competitive weakness
Big projects/acquisition
Escalation of commitment of bad decisions
Strategies
New management + restructuring
Tighter controls + delegation of responsibilities
Cost focus strategy + Ansoffs matrix
Redevelop marketing mix + motivate sales
force
Porters generic strategies
Feasibility reports
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Changes in products/services
Environmental factors:
SLEPT
Porters 5 competitive forces
Changes in Technology:
Computerization
New products
Better MIS
Change in Working conditions:
New offices
Varied work times
Emphasis on health
Govt. regulations
Change in Management:
New style of leadership
Participation in decision making
Collaboration between management staff & unions
Change in Personal policies:
Change in rules and procedures (e.g. smoking)
Promotion, transfer, training , development
Change in structure and size:
Due to Takeovers
Delegation of authority
Centralization
Downsizing
Types of
Changes
Pro-active
Step change
Planned change
Emergent change
Resistance to change
Active resistance
passive resistance
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(by Lewin/Schein)
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Phase 1:
Phase 2:
Phase 3:
Phase 4:
Phase 5:
(Focus)
Evolution (Small organization focusing on operations, personnel issues and innovation)
Revolution (Need for leadership skills)
(Management/group)
Evolution (Management is professionalized, there are more employees but less enthusiasm)
Revolution (delegation is problem; lack of detailed control; no initiation)
(System)
Evolution (decentralized decision making)
Revolution (no coordination between departments, sub optimization occurs)
(Internal Controls)
Evolution (Internal control systems and procedures are developed for coordination and optimal use of
resources)
Revolution (new procedure inhibits useful actions)
(Communication / collaboration)
Evolution (Increased informal collaboration; control is cultural rather than formal)
Revolution (Crisis of psychological saturation in which individuals become exhausted by teamwork)
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Market Intermediaries
Competitors
ENVIORNMENT
End user
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CONCEPT
Production concept
CUSTOMER WANTS
Availability and affordability
Product concept
Selling concept
Marketing concept
COMPANY SHOULD
Improve production, distribution
efforts
Continues product improvement
Large scale selling, promotion
Effective & efficient than competitor
Starting point
Factory
Focus
Existing products
Marketing concept
Market
Customer needs
Means
How to increase
demand
How
to
satisfy
demand
Ends
Profits through sales volume
Profits through
satisfaction
customer
Despite adoption of market oriented approach; there is need for sales force:
To create awareness
To convince to buy from company, not from competitors
To reassess benefits to customers
To convince that average customers requirements are met
Problems in introducing the marketing approach:
Understand what marketing orientation actually means
Organizational, structural and cultural changes are required.
Assessment of Product, logistic, level of services and marketing techniques
Organization wide dedication
Types of Marketing
Working together as whole
Strategic Marketing
Tactical Marketing
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Service industry:
People
Processes
Physical evidence
Important Points for discussion questions:
1. Expectation = Perceived value
2. Customers often do not judge products value and cost accurately and objectively.
3. A Customer buys the highest perceived value.
4. Satisfied customers give benefits of
i. Loyal
ii. Being less price sensitive
iii. Talk favorably
5. Two fold object of marketing
i. Retain existing customer by providing satisfaction
ii. Attract and grow new customers by promising superior value
Marketing Approaches
Push Approach
Focused on pushing goods to
Reseller and customer. The focus
Is on sale volumes.
Pull Approach
Focused on pulling resellers
and customers by satisfying them,
Fulfilling their demands to attract
Them to the company
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Social
o Reference group
o Family
o Roles and status
Personal
o Age and lifecycle stage
o Occupation
o Economic situation
o Lifestyle
o Personality and self concept
Psychological
o Motivation
o Perception
o Learning
o Beliefs and attitudes
Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and
other important institutions.
Subculture is a group of people with shared value systems based on common life experiences and situations.
Subcultures might be nationality groups, religious groups, racial groups, or geographic area groups.
Social classes are societys relatively permanent and ordered divisions whose members share similar values, interests
and behaviors.
Reference group has a direct (face to face) or indirect points of comparison or reference in forming a persons attitudes
or behavior.
Aspirational group is one to which an individual wishes to belong.
Opinion leader is a person within a reference group who, because of special skills, knowledge, personality or other
characteristics, exerts influence on others.
Personality is a persons unique psychological characteristics that lead to relatively consistent and lasting responses to
his or her own environment.
A motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.
Perception is the process by which people select, organize, and interpret information to form a meaningful picture of
the world.
Learning is changes in an individuals behavior arising from experience.
Belief is a descriptive thought that a person holds about something.
Attitude is a persons consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or
idea.
Marketing efforts
ii) Information Search:
To clarify options available to consumers.
o Internal search: Scanning of memory (experience) or knowledge about solution of problem/need sufficient
For frequent/regular purchases.
o External search:
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Size
Price
However sometimes consumer has to base his decision only on one attribute.
iv) Purchase Decision: [The best rated camera will be bought.]
v) Post-Purchase behavior:
Dissatisfied
Satisfied
Delighted
A policy by firms is to understate performance because customers are delighted with better-than-expected performance.
Why satisfaction of Customer/study of this stage is important:
1. To attract new customers cost more than to retain current customers.
2. Satisfied customers are less price sensitive.
3. Satisfied customers tell others (words of mouth). Bad words travel farther and faster.
Decision process for new product i.e. stages in adoption process (from hearing to adoption):
1. Awareness:
2. Interests: seek information i.e. through external sources
3. Evaluation: whether to try or not
4. Trial: on small scale to improve estimate of value
5. Adoption: decides to make full and regular use
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Existing Market
Existing Product
Market Penetration
New Product
Product Development
New Market
Market Development
Diversification
Downsizing:
When a firm reduces business portfolio by eliminating products or business that is not profitable or no longer fit its
overall strategy..
Setting strategic objectives and goals:
Firms mission is translated into set of objectives for the current period for each SBU.
Developing plans and strategies
Marketing Process:
The marketing process is the process of
1. segmenting the market,
2. selecting target markets,
3. marketing positioning
4. developing the marketing mix, and
5. managing the marketing effort.
Marketing mix:
The marketing mix is the set of controllable factors that the firm blends to produce the response it wants in the target
market. i.e. Product, Price, Place, Promotion
Managing the Marketing Effort:
Marketing Management has four functions of analysis, planning, implementation, and control..
1. Marketing Analysis
o Analysis of companys Strength and Weakness
[Internal]
o Analysis of environments Opportunities and Threats. [External]
2. Marketing Planning involves deciding on marketing strategies to attain its overall strategic objectives of company.
3. Marketing Implementation is the process that turns marketing strategies and plan into marketing actions in order to
accomplish strategic marketing objectives. Implementation addresses the who, where, when, and how.
4. Marketing control is the process of evaluating the results of marketing planning and its implementation, and taking
corrective action to ensure that marketing objectives are attained.
Two broad forms of control are important:
1). Operating control involves checking ongoing performance against the annual plan and taking corrective
action when necessary.
2). Strategic control involves looking at whether the companys basic strategies are well matched to its
opportunities. The major tool for accomplishing this form of control is the marketing audit.
The marketing audit is a systematic analysis and evaluation of organizations marketing position and performance. It
may cover all marketing activities or some of them.
Audit will focus on 3 things:
1. Marketing capabilities
2. Performance evaluation (are sales meeting forecasts?)
3. Competitive effectiveness (competitive advantage, product differentiation)
Partnership relationship management:
Working closely and jointly with
Other departments of company
Other companies
to bring greater value.
Value Chain and Value delivery network:
Value Chain is series of departments within the company carrying out value-adding activities e.g.
Designing
Producing
Marketing
Delivery
Supporting
Value delivery network is network of suppliers, company, intermediaries, and consumers who partner with each other
to improve performance of entire system.
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Purchasing approaches
Purchasing function organization (centralized or decentralized)
Power structure
Nature of existing relationship
General purchasing policies (leasing, service contracts, or sealed bidding)
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Situational factors
Personal characteristics
Buyer-seller similarity of values
Attitude towards risk (risk taking or averse)
Loyalty (to companies who show high loyalty to suppliers)
Segmenting International Markets
Companies can segment international markets using one or more of a combination of variables. The chief factors that
can be used are:
1). Geographic location: location or region
2). Economic factors: Population income or level of economic development
3). Political and legal factors: Type / stability of government, monetary regulations, amount of bureaucracy, etc.
4). Cultural factors: Language, religion, values, attitudes, customs, behavioral patterns.
Requirements for Effective Segmentation
Substantialsegment must be substantially large or profitable.
Accessiblesegment must be reached and served easily.
DifferentiableIt must be conceptually distinguished and should have the ability to respond differently to different
marketing mix elements and programs.
ActionableIt should be possible to design effective programs for attracting and serving market segment.
MeasurableSize, purchasing power, and profiles of a market segment should be measurable.
2. Target Marketing
Target market is a set of buyers sharing common needs or characteristics that the company decides to serve.
Target marketing strategies: (Product affecting Promotion)
The firm can adopt one of four target marketing strategies:
A. Undifferentiated marketing (or mass marketing) a market-coverage strategy in which a firm decides to ignore
market segment differences and go after the whole market with one offer
B. Differentiated marketing (or segmented marketing) a market-coverage strategy in which a firm decides to target
several market segments and designs a separate offer for each.
C. Concentrated marketing (or niche marketing) a market-coverage strategy in which a firm goes after a large
share of one or a few segments or niches.
D. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific
individuals (individual marketing) and local customer groups (Local marketing).
Market offers can be differentiated along the lines of:
Product
Service
Channels
People
Image
Considerations while choosing strategy:
Company, resources and objectives
Competitor, strategies
Product
o stage in the life cycle
o variability
Market, variability
Evaluating Market Segments
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Substitute products
Power of buyers
Power of suppliers
Company objectives and resources
3. Product Positioning
Product positioning is imaging the product in the minds of consumers relative to competing products.
Positioning task (or choosing a positioning strategy) consists of following four steps:
1. Identifying possible competitive advantages
2. Choosing right competitive advantages
3. Selecting an overall positioning strategy
4. Developing a positioning statement
1) Identifying possible competitive advantages:
Competitive advantage (making a difference) is an advantage over competitors gained by offering consumers greater
value, either through lower prices or by providing more benefits that justify higher prices.
2) Choosing the right competitive advantages:
How many to promote:
Only one difference. Aggressive approach
More than one differences. Where more than one firms are claiming to be the best at same attribute. However it risks
disbelief and a loss of clear positioning.
Which ones to promote:
Important for buyers
Distinctive than competitors offer
Superior
Communicable and visible difference
Competitors can not copy easily
Affordable for buyers
Profitable for company
3) Selecting an overall competitive positioning strategy:
What offer to make in relation to competitors offer (Use 2x2 or 3x3 Grid)
Price
More
Same
Premium brand
More
Quality
Average
Same
Less
Less
Super bargain brand
Bargain brand
Economy brand
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Research procedure:
The marketing research process consists of following steps:
1. Defining the problem
2. Designing the research (basis of research objectives)
3. Collection of data
4. Analysis of data (Pre and Post testing etc)
5. Presentation of report
6. Management decision
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Disadvantages
Incomplete
Wrong form
Ages quickly
Not expert
External sources:
Information about Competitors (annual reports, press releases, web pages, business publications,
advertisements etc.)
Analyzing competing products
Rival companies personnel (executives, engineers, sales force, purchasing agents)
Trade suppliers
Outside suppliers
Online databases
New patents or applications for patents
Individual interviews
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Sampling plans
As surveying the whole population would be too expensive & time consuming, so a sample is selected.
Sample is a segment of population selected for marketing research to represent population as a whole.
Geographical reach
Speed
Information sharing of any kind e.g. text, audio, video, animation, graphics
Shopping at home (Consumer)
No physical barriers (Consumer)
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Disadvantages:
Security concerns (consumer)
Whom to complaint (consumer)
What you see is sometimes not what you get (consumer)
Sometimes physical presence is necessary e.g. smelling a perfume or fitting clothes (consumers)
Logistic, shipping, distribution and delivery challenges (business)
Availability of secure and affordable communication network
E.Business Models:
Government
Business
Consumer
Employee
Government
G2G
G2B
G2C
G2E
Business
B2G
B2B
B2C
B2E
Consumer
C2G
C2B
C2C
B2C E.Commerce occurs when an average citizen interacts with a company (like Bata Pakistan or amazon.com)
through a website to buy shoes or books online or making inquiries.
B2B E.Commerce is companies doing business electronically with other businesses e.g. a business selling up, down or
across the supply chain involving business partners. Such as All Pakistan Textile Association Mills
B2E E.Commerce is use of intranet technology to handle activities that take place within a business. Using B2E
E.Commerce employees collaborate with each other, exchange data and information and access in-house database,
sales information, market news and competitive analysis.
Its need arises when branching out and spreading business across geographical areas. E.g. H/O receiving and
processing Timesheets, Expense Claims, and Absent forms.
C2C E.Commerce is consumers selling goods directly to consumers in an auction process. E.g.
EBay
Chat rooms for information and advertisement
Over personal websites
Advertisement on E.news papers
G2C E.Commerce is the use of E.Commerce technology by the government to handle activities electronically in
which govt. is involved with. E.g.
To publish and disseminate information by Govt.
Change in address, marital or family status
Submission of tax returns
To cast vote
Customization and Customerization:
Customization is individualizing the marketing offer. E.g. taking measurement of jeans for a customer.
Customerization is leaving it to individual customers to design the marketing offer, allowing customers to be
prosumers rather than consumers. E.g. adding specific features to jeans like colorful patches.
New technology in Distribution:
DRTV
Internet (B2C)
o Websites
o Email
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Chapter 25 : Product
Product
A product is anything that can be offered to a market for use, or consumption and that might satisfy a want or need
such as soap.
Product includes:
Goods
Services
Convenience
Shopping
Specialty
Unsought
Types of consumer products
Marketing
Consideration
Consumer buying
behavior
Convenience
Shopping
Specialty
Unsought
Frequent purchase
Little planning
Little effort and involvement
Little comparison
Special effort
Little comparison
Strong brand loyalty
Low price sensitivity
Either no awareness
or no interest
Price
Low
Less frequent
purchase
Much planning
Much effort &
involvement
Much comparison
Higher
Very high
Varies
Place
Intensive distribution at
convenient locations
Selective distribution in
fewer outlets
Varies
Promotion
Mass promotion
Advertising and
personal selling
Examples
Tooth pastes
Magazines
Televisions
Furniture
Clothing
Aggressive
advertising and
personal selling
Life insurance
Red cross blood
donation
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Individual product
o Standardized or adapted Market offers can be differentiated along the lines of:
Product
Service
Channels
People
Image
o Product attributes
Tangible
Quality
Features
Brand name
Packaging
Intangible
Image
Perceived value
o Packaging & Labeling
o Product support service
Product Line Decisions
o Product line length
Product Mix/Assortment/Portfolio Decisions
o Width (No. of product lines of a company)
o Depth (No. of items per product line)
o Consistency (how closely related the various product lines are in end use, production requirements,
distribution channels, or in some other way.
A brand is a name, sign, symbol, or design, or a combination of those that identifies the maker or seller of a product or
service.
Packaging is the activity of designing and producing the container or wrapper for a product.
Labeling is also part of packaging and consists of printed information appearing on or with the package
Product support services are the services that augment actual products.
A product line is a group of products that are closely related because they function in a similar manner, are sold to the
same customer group, are marketed through the same types of outlets, or fall within given price ranges.
Product line length is the number of items in the product line. Long/short depends on increase of profit by
adding/deleting items.
An organization with several product lines has a product mix.
Product-Market Matrices:
It is a simple technique used to classify a Product/Business according to the features of the product and market to
determine the
Relative positions of Businesses/Products and
Strategies for resources allocation between them.
There are 2 commonly used techniques:
1. Boston Consulting Groups Growth-Share Matrix
2. General Electric Business Screen (GEBS)
1) BCG growth-share matrix is used to evaluate a companys SBUs/Product in terms of market growth rate and
relative market share.
Star
Needs heavy investment to
finance rapid growth potential
Question Mark
Requires a lot of cash
(Problem Child)
Cash Cow
Established, successful
Needs less investment
Dog
Enough to maintain themselves
No future
Relative market share
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After determination of position of a SBU in BCG matrix, following strategies are available:
Build
Hold
Harvest
Divest
The BCG and other formal methods revolutionized strategic planning. Such approaches, however, have limitations:
1). They can be difficult.
2). They can be time consuming.
3). They can be costly to implement.
4). Management may find it difficult to define SBUs and measure market share
and growth.
5). The approaches focus on classifying current businesses but provide little
advice for future planning.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.
Business
Strength
Strong
Average
Weak
Market attractiveness
Attractive
Average
Invest for growth
Invest selectively for
growth
Invest
selectively
and build
Develop selectively;
build on strength
Develop selectively
for income
Harvest
Unattractive
Develop for income
Harvest or Divest
Divest
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6. Product development
Developing the product concept into a physical product in order to ensure that the product idea can be turned into
a workable product
7. Test marketing
The basic purpose is to test the product itself in real markets.
8. Commercialization
Introducing a new product into the market.
Stages of Product Life Cycle (PLC)
1. Introduction
2. Growth
3. Maturity
4. Decline
Exceptions are Fad, Style, and Fashions.
Strategies change with change in stage of PLC.
Product life cycle- Characteristics, objectives and strategies:
Introduction
Growth
Characteristics
Sales
Cost
Low
High per customer
Profit
Customers
Competitors
Negative
Innovators
Few
Rapidly rising
Average cost
customer
Rising
Early adopters
Growing
Marketing objectives
Create
product
awareness and trial
Maximize
share
Strategies
Product
Price
Use cost-plus
Place
Selective distribution
Offer
product
extensions, service,
quality
Price
to
penetrate/skim
market
Intensive distribution
Promotion
Use heavy
promotion
Targeting
sales
per
market
Reduce
to
take
advantage of heavy
demand
Mass market (build
awareness)
Maturity
Decline
Peak sales
Low
cost
per
customer
High profit
Middle majority
Stable
number
beginning to decline
Maximize
profit
defending
market
share
Declining sales
Low
cost
per
customer
Declining profit
Laggards
Declining number
Price to match or
beat competitors
More
intensive
distribution
Increase
to
encourage
brand
switching
Stress
brand
differences
and
benefits
Reduce expenditure
and milk the brand
Go selective; phase
out unprofitable
Reduce to minimal
level
Reduce to
needed to
core-loyals
level
retain
Assessment of PLC:
Regular review of existing products
Analysis of past trends
History of other products
Market research
Analysis of competitors
Estimate of future life and profitability should be discussed with experts
74
Packaging:
Functions of packaging:
Protection
Quality standard (e.g. expiry)
Distribution
Selling (Advertising, attractive, motivating,)
User convenience (value depicting)
Conforms to govt. regulations (e.g. ingredients, price, expiry etc.)
Usually goods are packaged in more than one layer.
Qualities required of a packing:
Size and variety should be minimized.
Attractive and distinctive to target consumer.
All functions of packing are also required.
Cost effective
Fitting for storage purposes
Product Portfolio Planning
All product lines and items that company offer for sale [Overall product range of organization]
Width (No of product lines carried by Company)
Depth (No of items carried divided by No of product lines)
Consistency (closeness of items in range in terms of marketing/production characteristics)
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Chapter 26 : Price
PRICING CONSIDERATIONS AND APPROACHES
Price is the sum of the values that consumer exchange for the benefits of having or using the product.
Only element to produce revenues
Most flexible element
Could be Fixed or Dynamic
Price Setting
Cost
Competition
Demand (Elastic / Inelastic)
Common Pricing Mistakes
1). Pricing is too cost-oriented.
2). Prices are not revised often enough to reflect market changes.
3). Prices do not take into account the other elements of the marketing mix.
4). Prices are not varied for different products, market segments, and purchase occasions.
Internal Factors Affecting Pricing Decisions
1. Marketing objectives
2. Marketing mix strategies
3. Costs
4. Organizational considerations
1. Marketing objectives:
Survival
Current profit maximization
Market share leadership
Product quality leadership
Other objectives
To prevent competitors
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Demand curve
Price
Consumer income
Market-Skimming Pricing
Setting a high price for a new product to skim maximum revenues layer by layer from segments
willing to pay the high price.
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Market-Penetration Pricing
Setting a low price for a new product to attract a large number of buyers and a large market
share.
Eliminates competition
Car buyer may choose to order power windows, cruise control, and a CD changer.
Captive- product pricing.
Setting a price for products that must be used along with a main product.
Examples of captive products are blade with razors, game cassettes with system.
By-Product Pricing
Hold current
price
and
continue to
monitor
competitors
prices
N
Y
Will lower price negatively affect our market share and profit?
N
Y
Can/Should affective action be taken?
Y
N
Reduce price
Raise perceived quality
Improve quality and reduce price
Launch low-price fighting brand
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Chapter 27 : Place
Place / Distribution Channels / Delivery System
Place is selection of distribution channels to deliver goods to consumers.
Key issues in Distribution Channel::
Coverage and density (Exclusive, Selective, Intensive)
Channel length (no. of intermediaries between consumer and producer)
Power and alignment of different elements
Logistic and physical distribution
Support and after sale service
Channel design decision (Customer, Product characteristics, Distributor characteristics, Channel
choosed by competitors, Suppliers own characteristics)
Nature and Importance and Functions of Marketing Channels:
Marketing Channel (distribution channel) is a set of interdependent organizations (intermediaries) involved in the
process of making a product or service available for use or consumption by consumer or business user. Each
organization performs a specialized and specified role.
Importance includes:
1. Channel decisions affect other marketing decisions
2. Competitive advantage could be gained.
3. Involves long term commitments to other firms
4. Channel members add value through
a. Their contacts, experience, specialization and scale (economies) of operation.
b. Matching supply and demand
c. Bridging Time, Place and Possession gap
Functions performed by members of marketing channel:
Functions that help to complete transactions:
1. Information (Marketing research and intelligence information)
2. Promotion (Developing and spreading persuasive communication)
3. Reselling (Finding and communicating with prospective buyers)
4. Matching (shaping and fitting to the buyers needs e.g. assembling, packing)
5. Negotiation
Functions that help to fulfill the completed transactions:
6. Physical distribution (Transportation, storing and Inventory management)
7. Financing (Acquiring and using funds)
8. Risk taking (Assuming the risk of carrying out the channel work)
You can eliminate middle man, but not middle mans functions
Types of Distribution channels:
Direct distribution channel has no intermediary.
Intermediaries dont get their share.
Intermediaries dont get dominant
Own sales force is best for geographically centered buyers.
Indirect distribution channel has one or more intermediaries.
Where resources are insufficient to finance large sales force.
Where no local knowledge of market
Suitable for geographically spread buyers.
Types of Distributors:
a) Franchisees:
Trade in name of parent in exchange of initial fee + share of sales volume
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b) Distributors/Dealers:
Buy and resell at profit
Dealing in narrow range of products;
Sometimes exclusive distribution or dealing only one manufacturer;
Also provide after sale services.
c) Agents: (vs. Dealers)
Consigned for commission on sale)
d) Wholesaling:
Selling goods to business buyers
e) Retailing:
Selling goods to consumer buyers
f) Multiple Stores:
Sell under the own label brand name
How do channel firms interact and organize to do the work of the channel:
Channel Conflict is disagreement among marketing channel members on goals, roles and rewards (who should do
what for what reward). It may be
Horizontal, conflict among firms at same level of channel e.g. dealers may complain that others are
pricing too low or selling beyond their territory.
Vertical, conflict among firms at different level of channel e.g. conflict with dealers when opening
online stores even though for hard to reach customers.
Disintermediation is eliminating or replacing intermediaries. e.g. opening online stores
Outbound distribution (moving product form factory to reseller and ultimately to consumers)
Downstream
Warehousing
o Production and consumption cycles rarely match.
o A company must decide, how many, what types and where
o Company might use either storage ware house or distribution centers.
Inventory management
o Managers must maintain balance between too little and too much inventory.
o Just in time requires accurate forecasting along with fast, frequent and flexible delivery
o Just in time substantial cost saving in carrying and handling cost and low obsolescence.
Logistic information management, In VMI (Vendor Managed Inventory) customer share real-time
data on sales and current inventory levels with supplier and supplier then takes full responsibility
for managing inventories and deliveries.
Transportation
Promotion
Display
New technology in Distribution:
DRTV
Internet (B2C)
o Websites
o Email
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Chapter 28 : Promotion
Two basic strategies of Promotion:
Push strategy using sales force to push the product through the channels, the producer promotes the product to
wholesalers, the wholesalers promote to the retailers, and the retailers promote to the final consumers.
Pull strategy spending a lot on advertising and consumer promotion to build up consumer demand; if successful,
consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the
producers.
Communication media
1. Personal communication channels, through which people communicate directly with each other.
i. Face to face
ii. Person to audience
iii. Over telephone
iv. Through mail
v. Through internet chat
2. Nonpersonal communication channels, media that carry messages without personal contact or feedback.
i. Print media (newspapers, magazines)
ii. Broadcast media (radio, television)
iii. Display media (signs, posters)
iv. Online media (online services, Websites)
Marketing communication mix or Promotional mix
It is a blend of
A. Advertising
B. Personal selling
C. Sales promotion
D. Direct Marketing and
E. Public relations tools
That a company uses to communicate with its customers.
A range is better than only one.
A) Advertising:
Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor
Advertising objectives (AIDA) are as follows:
1. Informative advertising
a. To communicate information
b. To create awareness
c. In Early stage of PLC or on modification
2. Persuasive advertising
a. To create a desire for a product and to stimulate actual purchase
b. In growth stage of PLC
3. Reminder advertising
a. Reinforcing knowledge and
b. Reminding of benefits
c. In Maturity stage of PLC
Advertising media
Above the line (Press, Radio, TV, Cinema)
Below the line (Direct mail, Exhibition, Package design, Merchandizing)
Advantages (Vs. Personal selling):
Mass communication
Expressive advertisement
Standardization and legitimacy
Seller is able to repeat a message many times
Disadvantages (Vs. Personal selling)
Costly
One way communication
Impersonal
Not so persuasive
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Time
Finance
Procedure
Hospitality
Auditing Customer satisfaction: (why customers are not satisfied ? )
Customer satisfaction surveys
Work won and lost
Changes in market shares
Revenue from newly released products
Rude and unhelpful staff
A policy is to encourage customers to complain( 96% do not)
Technology Development Interactive marketing:
Interactive marketing in instant communication and responses between promoter and customers. It may be called
sometimes as Computerized Personal Selling e.g.
DRTV (Direct Response Television)
Interactive Internet websites
Interactive Kiosk
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Absolute advantage is producing goods more efficiently than any other country.
Country should produce goods for which they have an absolute advantage and then trade these goods for
other goods produced by other countries.
Comparative advantage:
One step further than absolute theory introducing concept of opportunity cost.
Country should specialize in the production of those goods in which it has lowest opportunity cost.
Why countries avoid specialization
Comparative advantage is never stable.
Diversification protects fall in world demand.
Agriculture industry is subject to uncertainties of climate.
Import restrictions are possible by other governments to develop self sufficiency.
Multi nationals may assemble or manufacture in different countries for political or logistic reasons.
Competitive advantage (national):
Porter states that Comparative Advantage is too general concept to explain success of individual companies and
industries.
He believes 4 conditions (diamonds) within a country help firms to compete.i.e.
1. Factor conditions
2. Demand conditions
3. Firm strategy, structure and rivalry
4. Related and supported industries
Orientations of International Business Management (by Perlmutter)
Ethnocentrism:
Company focuses on domestic market and export is secondary.
No local research, marketing mix is standardized.
Same products with same market programs.
Polycentrism:
Each country is unique and requires customization.
Product and market programs must match with local environment.
Company establishes independent local subsidiaries and decentralizes marketing management.
Geocentrism:
Synthesis of two approaches.
Think globally, act locally.
Integrated approach to create a global strategy that is fully responsive to local market.
Regiocentrism:
It is Geocentricism but that it recognizes regional differences.
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Political advantages
For Company
Exchange rate:
Purchasing Power Parity theory calculates exchange rate based on relative cost of purchasing same basket of goods in
two countries.
A currencys exchange rate is also determined by Demand and Supply. They in turn are determined by Inflation,
Speculation, Interest rates, Govt. policies and Balance of Payment.
Exchange rate risk is the risk that foreign currency will exchange in smaller amount of domestic currency in future.
Types:
This can arise under any of three Exchange Rate Systems i.e.
1. Fixed (Central bank interferes to fix the rate)
2. Managed (Like fixed but allowed to vary between preset limits)
3. Floating (depends on supply and demand)
Managing exchange risk:
Hedging devices
Flow of money in both direction
Design for global business (by Bartlett and Ghoshal )
High
pressure
Globalize
to
Low
Pressure
Globalize
to
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Geocentric orientation
Chemicals, Construction
International Environment
Ethnocentric orientation
International division
Paper, textile
Polycentric orientation
Polycentric orientation
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Environmental analysis
Size of market
Regulations
Culture
Micro level research
Competition
Transportation
Healthcare
Education
Labor
Target Market
Unclear goals
Inadequate control
HR considerations to be managed at local level
Poor IS and Communication
Diversification of countries over population, income, development, education etc.
Time horizon
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Export publications
Monitoring
Latent demand; where potential customers are currently recognized but are not being
served.
Incipient demand; where there is foreseeable, but not a present, market for products.
Research
Comparative analysis
Lack of data
Lack of reliability
Response problems (Peoples unwillingness to provide info)
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Joint venture
o Industrial cooperation/Contractual (fixed period)
o Joint-equity venture (continued)
Export
Advantages
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Export
Concentration
on
production
Economies of scale
Consistency of product
quality
International experiment on
small scale
Easiest, cheapest, most
common
Political risks are avoided.
License
Avoids costs and hassle of
setting up overseas.
Rapid penetration
No investment
No Political risk, No
Protectionism
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Key Issues
Political risks.
Partnership
Managing
overseas
facilities
Usually more involvement
but subsidiary may act
independent.
Protectionism
Exchange rates
Usually less involvement
Capture market.
Political risk in FDI for multinationals
Political risk is the risk that political actions will affect the position and value of a company.
How Political actions can affect:
1. Tariff and non-tariff barriers e.g. Quotas
2. Govt. interference in contracts
3. Imposition of
i. Increased tax rates
ii. Price controls
iii. Exchange controls through
a. Rationing supply of foreign exchange
b. Blocking funds of foreign parent (counter ways)
Dividend
Selling goods/services (volume and transfer pricing)
Royalty
Loan and high interest rates
Management charges
4. Nationalization
How to cope with political risk:
1. Negotiation (agreement) with Government
i. Transfer of capital
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ii.
iii.
iv.
v.
2.
3.
4.
5.
6.
Insurance
Contacts with markets
Management structure (joint venture or giving control to local)
Financial management (obtain finance locally)
Production strategies (giving control to local to produce Or to supply chain management)
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An example of Securitization.
Issued in the form of unsecured promissory notes with a fixed maturity date.
Takeover bids
Govt. borrowings
Project financing
Credit is a facility whereas Loan is a transaction.
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MOFs:
Multiple Options Facilities (MOF) comprise variety of instruments through which company can raise funds and
include:
Note Issuance Facilities (NIF)
Revolving Underwriting Facilities (RUF)
Counter Trade
Counter trade is a trade of goods and services for other goods and services.
Types/arrangements of Counter Trade:
Barter (direct exchange of goods/services between two parties without a cash transaction)
Counter purchase (A reciprocal buying agreement between two parties whereby seller also undertakes to
purchase a certain amount of merchandize from other country)
Offset (like counter purchase but party can purchase from any firm in the country)
Switch Trading (A third party trading house buys the firms counter purchase credits and sells them to
another firm that can better use them)
Buyback (One country supplies capital goods and receives its output as partial/full payment)
Advantages of Counter Trade:
1. A mode to finance exports when other modes are not available.
2. Competitive advantage over parties preferring cash transactions.
Disadvantages of Counter Trade:
1. Goods received may be unusable, poor quality, or unprofitable.
2. Expensive and time consuming to develop a separate in-house trading department to dispose those goods
3. Unrealistically high value may be impose on goods.
4. Cost may exceed expectation. (Cost includes Consultancy fee, Discount, Bank fee, Insurance, Any fee paid to
third party)
Why Countries do Counter trade:
Countries use it as an instrument of political, economical policies (e.g. Balance of Trade, relationships)
Unusual in industrial countries with exception of defense, aviation and big advanced technology.
Financial problems in Foreign Trade
Foreign Trade raises special financial problems i.e.
Bad debts risk is greater
Large investment appears in receivable and stocks
Reducing bad debts risk:
1. Export factoring
2. Forfeiting
3. Documentary Credit (L/C)
4. International Credit Unions
5. Export Credit Guarantee Schemes
Export factoring:
Factoring company provides administration of:
Client invoicing
Sales accounting
Debt collection
Credit protection
Forfeiting: (providing medium term export finance)
Exporter sends Capital goods to overseas buyer who wants medium term loan.
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Guarantee is issued to banks to indemnify them against losses on finance given to exporters to manufacture
and process goods for export.
ECGS will issue a guarantee specifying maximum amount covered and rate of premium.
Exclusive
Selective
Intensive
Standardized/Undifferentiated marketing (same product, price, marketing program for all markets)
Adapted/Differentiated marketing
Concentrated marketing
Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
Communication
Standardization
Communication Adaptation
Product Standardization
Occasional exporters
Same
product
for
different
uses
in
different countries
Product Adapted
Costly
Required to exploit market fully
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Competition
Culture
Economy
No language problem.
Homogenous market.
Single currency
Relatively unimportant
Technological factors:
Banking
Collection
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Cash Management:
Centralized Cash Management:
1. Avoids mix of cash Surplus and overdraft.
2. Large volumes of cash are available to invest
3. Any borrowing could be arranged in bulk at lower rates.
4. Foreign currency risk management in improved.
5. Specialist Treasury Department will employ experts.
Decentralized Cash Management:
1. Great autonomy
2. Quick and more response to needs of individual operating units
3. More opportunities to invest on short-term basis.
Float is amount of money tied up between initialization and finalization of payment.
Measures to reduce Float include:
Lodgment delay should be minimum
BACS
CHAPS
Standing orders/ direct debit for regular payments
Lock boxes for international payments
Cash Pooling is netting of Debit and Credit balances with same bank to reduce interest cost.
How Cash surplus arises
By profitability
By low capital expenditures
By receipt from selling part of business
Takeover bids
Buy back of shares
Short term investments
o Banks
o Investment in listed shares
o Investment in debt instruments
Treasury bills (IOUs by govt. issued weekly for 91 days to finance govt. projects)
Eligible bank bills (IOUs by those top rated banks whose bill Bank of England
agrees to buy)
Bills of exchange
Commercial papers
Certificate of Deposits, Treasury bills and Eligible bank bills are Negotiable and Resalable.
International payment modes:
Cheque
Lock boxes (speeds up payment by cheque)
Bills of exchange
Bank draft (cheque by a bank drawn on one of its own account)
Mail Transfer
Like mail transfer but instructions are sent by cable or telex instead of by airmail.
In addition to banks, users include Security houses, Exchanges, Money brokers, Fund
managers etc.
International Money Orders
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Transfer pricing:
Basis include
Standard Cost
Market Price
Key Issues:
Costs more
Lesser local knowledge
Culture shock
Language/Communication
training required
These are a countrys endowment of inputs to production e.g. Human Resources, Physical resources, Capital,
Knowledge and infrastructure.
These factors could be
Basic (inherited and creation involves less investment e.g. natural resources) or
Advanced (include modern digital communications, highly educated people and research laboratories
etc.)
Demand conditions
The home market determines how firms perceive, interpret and respond to buyer needs.
Related and supported industries
Competitive success in one industry in liked to success in related industries.
Firm strategy, structure and rivalry
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Annexure A
Topic
Chapter 4 & 5 : Strategic Management :
Traditional and other models
Levels of strategy
Traditional approach to make strategy
Activities affecting Crafting strategy
Learning based strategy
Competitive strategy
Chapter 6 : SWOT Analysis and Gap Analysis
Porters 5 Forces model
Chapter 7 : Performance Appraisal &
Analysis
Measuring performance of profit center.
Inflation
Chapter 9 : Mergers and Acquisition
Strategic alliances benefits to franchiser
Chapter 10 : Corporate Re-organization
Management buy-out
Chapter 11 : Ethics and Social Responsibility
Social responsibility Favors - Externality
Chapter 13 :Human Resource Management
Different concepts Termination
Chapter 14 : Measurement and Performance
Factors affecting personality differences
Job restructuring & redesign
Employee appraisal working arrangements and
types of organizations
Types of incentive schemes
Employee appraisal Methods of appraisal
Chapter : 15 Training, Appraisal and Career
Management
Competence
Chapter 16 : Management and Human
Resource`
Trait theory
Leadership
Discipline Disciplinary problems in
organizations
Retirement, Resignation, Redundancy Unfair
Dismissal
Chapter 17 : Groups in Organization
Effects of conflicts within groups Groups &
Departments
Chapter 18 : Strategies for Critical periods
Corporate Decline 3 types of decline
Chapter 19 & 20 : Change Management and
Changing Environment
Nature of strategic change
Model for change
Approaches to implement change
Force Field Analysis
Change process
Pressure groups
Chap 20 : Strategic intelligence
Chap 20 : Environmental data
*Details
*Explanation
*Example
*Figure
PBP Reference
Figure
Explanation
Explanation
Explanation
Overview
Figure &
Explanation
Topic
Chapter 22 : The Evolution of Marketing
Concept
Marketing management
Elements of marketing mix Promotion
Value-chain
Marketing process
Chapter 23 : Strategic Marketing &
Planning
Development in segmentation
Benefits of market segmentation
PBP Reference
Explanation
Details
Explanation & examples
Details
Details
Details
Target Market
Explanation
Explanation
Details
Explanation
Explanation
Details
Details
Explanation
Details
Price leadership
Price Elasticity of Demand
Explanation
Explanation
Explanation
Details
Details
Explanation
Details
Distribution strategy
Marketing and Information System
Customer Dynamics and internet as
distribution channel
Chapter 28 : Promotion
Push and Pull Strategy
Merchandising
Planning a promotion campaign
Relationship Marketing
Chapter : International Business
Explanation
Details
Details
Competitive advantage
Protectionism
Details
Explanation
Explanation &
examples
Detail
Details &
examples
Details
Explanation
Pg : 298
Details
Concepts
Details
Explanation &
examples
Details
Details
Explanation &
examples
Details
Explanation
Explanation
Explanation
Explanation
Explanation
Details
Explanation &
examples
Details
Details
Topic included in these notes and needs further detail from PBP
Topic not included in these notes at all so needs to be read from PBP
For examples relating to the topic, see PBP
For graphical representation relating to the topic, see PBP
Details
Explanation
Explanation
Explanation
Explanation
Explanation
Explanation
Explanation
Details
Details
Explanation
Details
Details