Roll No. : 510911562Center Code : 1597Date : 17/11/2010

MBA Semester 4MB0036 – Strategic Management & Business Policy

Assignment Set – 1

1. Explain the different circumstances under which a suitable growth strategy should be selected by any company to improve its performance (i.e., intensive, integrative or diversification growth). You may select an example of your choice to substantiate your views (10 marks).

There are three alternatives to improve the sales performance of a business unit, to fill the gap between actual sales and targeted sales:

a) Intensive growth

b) Integrative growth

c) Diversification growth

a) Intensive Growth:

It refers to the process of identifying opportunities to achieve further growth within the company’s current businesses. To achieve intensive growth, the management should first evaluate the available opportunities to improve the performance of its existing current businesses.

It may find three options:

· To penetrate into existing markets

· To develop new markets

· To develop new products

At times, it may be possible to gain more market share with the current products in their current markets through a market penetration strategy. For instance, SONY introduced TV sets with Trinitron picture tubes into the market in 1996 priced at a premium of Rs.10,000 and above over the market through a niche market capture strategy. They gradually lowered the prices to market levels. However, it also simultaneously launched higher-end products (high-technology products) to maintain its global image as a technology leader. By lowering the prices of TVs with Trinitron picture tubes, the company could successfully penetrate into the markets to add new customers to its customer base.

Market Development Strategy is to explore the possibility to find or develop new markets for its current products (from the northern region to the eastern region etc.). Most multinational companies have been entering Indian markets with this strategy, to develop markets globally. However, care should be taken to ensure that these new markets are not low density or saturated markets, which could lead to price pressures.

Product Development Strategy involves consideration of new products of potential interest to its current markets (e.g. Gramaphone Records to Musical Productions to CDs)– as part of a Diversification strategy.

Study the following example to understand what Product Development Strategy is.

b) Integrative Growth:

It refers to the process of identifying opportunities to develop or acquire businesses that are related to the company’s current businesses. More often, the business processes have to be integrated for linear growth in the profits. The corporate plan may be designed to undertake backward, forward or horizontal integration within the industry.

If a company operating in music systems takes over the manufacturing business of its plastic material supplier, it would be able to gain more control over the market or generate more profit. (Backward Integration)

Alternatively, if this company acquires some of its most profitably operating intermediaries such as wholesalers or retailers, it is forward integration. If the company legally takes over or acquires the business of any of its leading competitors, it is called horizontal integration(however, if this competitor is weak, it might be counter-productive due to dilution of brand image).

c) Diversification Growth:

It refers to the process of identifying opportunities to develop or acquire businesses that are not related to the company’s current businesses. This makes sense when such opportunities outside the present businesses are identified with attractive returns and that industry has business strengths to be successful. In most cases, this is planned with new products that have technological or marketing synergies with existing businesses to cater to a different group of customers (Concentric Diversification).

A printing press might shift over to offset printing with computerised content generation to appeal to higher-end customers and also add new application areas ( Horizontal Diversification ) – or even sell stationery.

Alternatively, the company might choose new businesses that have nothing to do with the current technology, products or markets (Conglomerate Diversification).

2. What are the components of a good Business Plan and briefly explain the importance of each (10 marks).

A good business plan will help attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task.

The first step in planning a new business venture is to establish goals that you seek to achieve with the business. You can establish these goals in a number of ways, but an inclusive and ordered process like an organizational strategic planning session or a comprehensive neighborhood planning process may be best. The board of directors of your organization should review and approve the goals, because these goals will influence the direction of the organization and require the allocation of valuable staff and financial resources. Your goals will serve as a filter to screen a wide range of possible business opportunities. If you fail to establish clear goals early in the process, your organization may spend substantial time and resources pursuing potential business ventures that may be financially viable but do not serve the mission of your organization in other important ways. A liquor store on the corner may be a clear money-maker; however, it may not be the retail to assist your community desires.

The following are examples of goals you may seek to achieve through the creation of a new business venture:

Revenue Generation – Your organization may hope to create a business that will generate sufficient net income or profit to finance other programs, activities or services provided by your organization.

Employment Creation – A new business venture may create job opportunities for community residents or the constituency served by your organization.

Neighborhood Development Strategy – A new business venture might serve as an anchor to a deteriorating neighborhood commercial area, attract additional businesses to the area and fill a gap in existing retail services. You may need to find a use for a vacant commercial property that blights a strategic area of your neighborhood. Or your business might focus on the rehabilitation of dilapidated single family homes in the community.

Whenever possible, goals should have quantifiable outcomes such as “to generate a minimum of $50,000 of net income or profit within three years”; “to employ at least 15 community residents within two years in new permanent jobs at a livable wage”; “to occupy and support a minimum of 10,000 square feet of neighborhood commercial space”; or “to rehabilitate 50 single-family houses over three years.” Clearly defined and quantifiable goals provide objective measurements to screen potential business opportunities. They also establish clear criteria to evaluate the success of the business venture.

Establish Goals

Once you have identified goals for a new business venture, the next step in the business planning process is to identify and select the right business. Many organizations may find themselves starting at this point in the process. Business opportunities may have been dropped at your doorstep. Perhaps an entrepreneurial member of the board of directors or a community resident has approached your organization with an idea for a new business, or a neighborhood business has closed or moved out of the area, taking jobs and leaving a vacant facility behind. Even if this is the case, we recommend that you take a step back and set goals. Failing to do so could result in a waste of valuable time and resources pursuing an idea that may seem feasible, but fails to accomplish important goals or to meet the mission of your organization.

Depending on the goals you have set, you might take several approaches to identify potential business opportunities.

Local Market Study: Whether your goal is to revitalize or fill space in a neighborhood commercial district or to rehabilitate vacant housing stock, you should conduct a local market study. A good market study will measure the level of existing goods and services provided in the area, and assess the capacity of the area to support existing and additional commercial or home-ownership activity. This assessment is based on the shopping and traffic patterns of the area and the demographic and socio-economic characteristics of the community. A bad or insufficient market study could encourage your organization to pursue a business destined to fail, with potentially disastrous results for the organization as a whole. Through a market study you will be able to identify gaps in existing products and services and unsatisfied demand for additional or expanded products and services. If your organization does not have staff capacity to conduct a market study, you might hire a consultant or solicit the assistance of business administration students from a local college or university. Conducting a solid and thorough market study up front will provide essential information for your final business plan.

Analysis of Local and Regional Industry Trends: Another method of investigating potential business opportunities is to research local and regional business and industry trends. You may be able to identify which business or industrial sectors are growing or declining in your city, metropolitan area or region. The regional or metropolitan area planning agency for your area is a good source of data on industry trends.

Internal Capacity: The board, staff or membership of your organization may possess knowledge and skills in a particular business sector or industry. Your organization may wish to draw upon this internal expertise in selecting potential business opportunities.

Internal Purchasing Needs / Collaborative Procurement: Perhaps, your organization frequently purchases a particular service or product. If nearby affiliate organizations also use this service or product, this may present a business opportunity. Examples of such products or services include printing or copying services, travel services, transportation services, property management services, office supplies, catering services, and other products. You will still need to conduct a complete market study to determine the demand for this product or service beyond your internal needs or the needs of your partners or affiliates.

3. You wish to start a new venture to manufacture auto components. Explain different stages in the process of starting this new business (10 marks).

A new business goes through phases in the business cycle (very similar to the stages of human life).

The first phase – is the formation of an idea. A person – or a group of people join forces, centred around one exciting invention, process or service.

These crystallizing ideas have a few hallmarks:

They are oriented to fill the needs of a market niche (a small group of select consumers or customers), or to provide an innovative solution to a problem which bothers many, or to create a market for a totally new product or service, or to provide a better solution to a problem which is solved in a less efficient manner.

At this stage, what the entrepreneurs need most is expertise. They need a marketing expert to tell them if their idea is marketable and viable. They need a financial expert to tell them if they can get funds in each phase of the business cycle – and wherefrom and also if the product or service can produce enough income to support the business, pay back debts and yield a profit to the investors. They need technical experts to tell them if the idea can or cannot be realized and what it requires by way of technology transfers, engineering skills, know-how, etc.

Once the idea has been shaped to its final form by the team of entrepreneurs and experts – the proper legal entity should be formed. A bewildering array of possibilities arises:

A partnership? A corporation – and if so, a stock or a non-stock company? A research and development (RND) entity? A foreign company or a local entity? And so on.

This decision is of cardinal importance. It has enormous tax implications and in the near future of the firm it greatly influences the firm’s ability to raise funds in foreign capital markets. Thus, a lawyer must be consulted who knows both the local applicable laws and the foreign legislation in markets which could be relevant to the firm.

This costs a lot of money, one thing that entrepreneurs are in short supply of free legal advice is likely to be highly appreciated by them.

When the firm is properly legally established, registered with all the relevant authorities and has appointed an accounting firm – it can go on to tackle its main business: developing new products and services. At this stage the firm should adopt Western accounting standards and methodology. Accounting systems in many countries leave too much room for creative playing with reserves and with amortization. No one in the West will give the firm credits or invest in it based on domestic financial statements.

A whole host of problems faces the new firm immediately upon its formation.

Good entrepreneurs do not necessarily make good managers. Management techniques are not a genetic heritage.

They must be learnt and assimilated. Today’s modern management includes many elements: manpower, finances, marketing, investing in the firm’s future through the development of new products, services, or even whole new business lines. That is quite a lot and very few people are properly trained to do the job successfully.

On top of that, markets do not always react the way entrepreneurs expect them to react. Markets are evolving creatures: they change, develop, disappear and re-appear. They are exceedingly hard to predict. The sales projections of the firm could prove to be unfounded. Its contingency funds can evaporate.

Sometimes it is better to create a product mix: well-recognized brands which sell well – side by side with innovative products.

This is a brief – and by no way comprehensive – taste of what awaits the new business and its initiator, the entrepreneur. You see that a lot of money and effort are needed even in the first phases of creating a business.

How can the Government help?

It could set up an "Entrepreneur’s One Stop Shop".

A person wishing to establish a new business will go to a government agency.

In one office, he will find the representatives of all the relevant government offices, authorities, agencies and municipalities.

He will present his case and the business that he wishes to develop. In a matter of few weeks he will receive all the necessary permits and licences without having to go to each office separately.

Having obtained the requisite licences and permits and having registered with all the appropriate authorities – the entrepreneur will move on to the next room in the same building. Here he will receive a list of all the sources of capital available to him both locally and from foreign sources. The terms and conditions of the financing will be specified for each and every source. Example: EBRD – loans of up to 10 years – interest between 6.5% to 8% – grace period of up to 3 years – finances mainly industry, financial services, environmental projects, infrastructure and public services.

The entrepreneur will select the sources of funds most suitable for his needs – and proceed to the next room.

The next room will contain all the experts necessary to establish the business, get it going – and, most important, raise funds from both local and international institutions. For a symbolic sum they will prepare all the documents required by the financing institutions as per their instructions.

But entrepreneurs in many developing countries are still fearful and uninformed. They are intimidated by the complexity of the task facing them.

The solution is simple: a tutor or a mentor will be attached to each and every entrepreneur. This tutor will escort the entrepreneur from the first phase to the last.

He will be employed by the "One Stop Shop" and his role will be to ease life for the novice businessman. He will transform the person to a businessman.

And then they will wish the entrepreneur: "Bon Voyage" – and may the best ones win.

There is an inherent conflict between owners and managers of companies. The former want, for instance, to minimize costs – the latter to draw huge salaries as long as they are in power.

In publicly traded companies, the former wish to maximize the value of the stocks (short term), the latter might have a longer term view of things. In the USA, shareholders place emphasis on the appreciation of the stocks (the result of quarterly and annual profit figures). This leaves little room for technological innovation, investment in research and development and in infrastructure. The theory is that workers who also own stocks avoid these cancerous conflicts which, at times, bring companies to ruin and, in many cases, dilapidate them financially and technologically. Whether reality lives up to theory, is an altogether different question.

4. Explain the process of due Diligence and why it is necessary (10 marks).

A business which wants to attract foreign investments must present a business plan. But a business plan is the equivalent of a visit card. The introduction is very important – but, once the foreign investor has expressed interest, a second, more serious, more onerous and more tedious process commences: Due Diligence.

"Due Diligence" is a legal term (borrowed from the securities industry). It means, essentially, to make sure that all the facts regarding the firm are available and have been independently verified. In some respects, it is very similar to an audit. All the documents of the firm are assembled and reviewed, the management is interviewed and a team of financial experts, lawyers and accountants descends on the firm to analyze it.

First Rule:

The firm must appoint ONE due diligence coordinator. This person interfaces with all outside due diligence teams. He collects all the materials requested and oversees all the activities which make up the due diligence process.

The firm must have ONE VOICE. Only one person represents the company, answers questions, makes presentations and serves as a coordinator when the DD teams wish to interview people connected to the firm.

Second Rule:

Brief your workers. Give them the big picture. Why is the company raising funds, who are the investors, how will the future of the firm (and their personal future) look if the investor comes in. Both employees and management must realize that this is a top priority. They must be instructed not to lie. They must know the DD coordinator and the company’s spokesman in the DD process.

The DD is a process which is more structured than the preparation of a Business Plan. It is confined both in time and in subjects: Legal, Financial, Technical, Marketing, Controls.

The Marketing Plan

Must include the following elements:

· A brief history of the business (to show its track performance and growth)

· Points regarding the political, legal (licences) and competitive environment

· A vision of the business in the future

· Products and services and their uses

· Comparison of the firm’s products and services to those of the competitors

· Warranties, guarantees and after-sales service

· Development of new products or services

· A general overview of the market and market segmentation

· Is the market rising or falling (the trend: past and future)

· What customer needs do the products / services satisfy

· Which markets segments do we concentrate on and why

· What factors are important in the customer’s decision to buy (or not to buy)

· A list of the direct competitors and a short description of each

· The strengths and weaknesses of the competitors relative to the firm

· Missing information regarding the markets, the clients and the competitors

· Planned market research

· A sales forecast by product group

· The pricing strategy (how is pricing decided)

· Promotion of the sales of the products (including a description of the sales force, sales-related incentives, sales targets, training of the sales personnel, special offers, dealerships, telemarketing and sales support). Attach a flow chart of the purchasing process from the moment that the client is approached by the sales force until he buys the product.

· Marketing and advertising campaigns (including cost estimates) – broken by market and by media

· Distribution of the products

· A flow chart describing the receipt of orders, invoicing, shipping.

· Customer after-sales service (hotline, support, maintenance, complaints, upgrades, etc.)

· Customer loyalty (example: churn rate and how is it monitored and controlled).

Legal Details

· Full name of the firm

· Ownership of the firm

· Court registration documents

· Copies of all protocols of the Board of Directors and the General Assembly of Shareholders

· Signatory rights backed by the appropriate decisions

· The charter (statute) of the firm and other incorporation documents

· Copies of licences granted to the firm

· A legal opinion regarding the above licences

· A list of lawsuit that were filed against the firm and that the firm filed against third parties (litigation) plus a list of disputes which are likely to reach the courts

· Legal opinions regarding the possible outcomes of all the lawsuits and disputes including their potential influence on the firm

Financial Due Diligence

· Last 3 years income statements of the firm or of constituents of the firm, if the firm is the result of a merger. The statements have to include:

· Balance Sheets

· Income Statements

· Cash Flow statements

· Audit reports (preferably done according to the International Accounting Standards, or, if the firm is looking to raise money in the USA, in accordance with FASB)

· Cash Flow Projections and the assumptions underlying them

Controls

· Accounting systems used

· Methods to price products and services

· Payment terms, collections of debts and ageing of receivables

· Introduction of international accounting standards

· Monitoring of sales

· Monitoring of orders and shipments

· Keeping of records, filing, archives

· Cost accounting system

· Budgeting and budget monitoring and controls

· Internal audits (frequency and procedures)

· External audits (frequency and procedures)

· The banks that the firm is working with: history, references, balances

Technical Plan

· Description of manufacturing processes (hardware, software, communications, other)

· Need for know-how, technological transfer and licensing required

· Suppliers of equipment, software, services (including offers)

· Manpower (skilled and unskilled)

· Infrastructure (power, water, etc.)

· Transport and communications (example: satellites, lines, receivers, transmitters)

· Raw materials: sources, cost and quality

· Relations with suppliers and support industries

· Import restrictions or licensing (where applicable)

· Sites, technical specification

· Environmental issues and how they are addressed

· Leases, special arrangements

· Integration of new operations into existing ones (protocols, etc.)

A successful due diligence is the key to an eventual investment. This is a process much more serious and important than the preparation of the Business Plan.

5. Is Corporate Social Responsibility necessary and how does it benefit a company and its shareholders? (10 marks).

There are various theoretical perspectives on the concept of Corporate Responsibility: ranging from a traditional view of the firm (e.g. Friedman, 1962; Walley and Whitehead, 1994) to a call for a complete paradigm shift in business practice (e.g. Dyllick and Hockerts, 2002; Gladwin et al, 1995). However, all views on corporate responsibility are based on the same premise: that there is a corporate strategic approach to environmental and social issues (c.f. Banerjee et al, 2003; Lyon, 2004). Hence, it contains both corporate environmentalism and corporate social responsibility (Dyllick and Hockerts, 2002), leading to the current construct that Corporate Responsibility includes any initiative that reduces the environmental impact and/or contributes to the improvement of the social conditions beyond the firm’s legal obligations (Roome, 2006). As such, it is considered a key development in connecting corporate practices with the societal goal of sustainable development, as firms can “contribute to more sustainable patterns of production and consumption within society” (Roome, 2006: p. 137).

Corporate Responsibility can be considered as encompassing two components (Banerjee, 2002; Bansal and Roth, 2000; van Marrewijk, 2004): a strategy focus (i.e. how strategically important environmental and social issues are perceived by management), and an orientation aspect (i.e. a set of underlying corporate values that provide an internal ‘compass’ to which the company can orient its environmental and social actions). The orientation of an organisation has significant strategic power in terms of shaping the organisational direction (Chen et al, 1997; Keogh and Polonsky, 1998; Shrivastava, 1995c). As such, the ‘responsible’ orientation not only influences the overall responsibility of a firm, it also affects the extent and form that actual responsible strategies will take, as well as the ethical behaviour standards and the environmental protection commitment of the organisation (Shrivastava, 1995b). Therefore, the responsible orientation within a firm needs to be studied in more detail to provide additional insights into organisational attitudes towards the environment and society.

Various researchers (e.g. Bansal and Roth, 2000; McKay, 2001; Prakash, 2001) found that a multi-theoretical perspective explained some organisational responses to a greater extent than single theories in isolation, and could explain the seemingly ad hoc choices of firms to go beyond legal compliance. Since this paper aims to propose two complementary multidisciplinary approaches, none of the existing theories is judged or favoured above others. Instead, the different theories are used in combination to draw out more comprehensive notions of the role of values in corporate responsibility.

Assuming that organisations are open systems (Katz and Kahn, 1966), and as such become interdependent with those elements of the environment with which they transact (Pfeffer, 1982), organisations work within such interdependencies to reduce uncertainty and ensure survival (DiMaggio, 1988; McKay, 2001). Based on this, the central premise of resource dependence is that power relations among actors are commonly asymmetrical and that organisations strive to obtain power, maintain autonomy, and reduce uncertainty in the context of external pressures and demands. Control over resources is critical in maintaining power and is therefore pursued by organisations (McKay, 2001). As such, an organi sation-wide dedication to a compelling long-range vision (a shared vision) is the key to generating the internal pressure and enthusiasm needed for [responsible] innovation and change (Hamel and Prahalad, 1989; Hart, 1995). Given the difficulty of generating a consensus about a purpose, shared vision is a rare (firm-specific) resource, and few companies have been able to establish or maintain a widely shared or enduring sense of mission (Hamel and Prahalad, 1989). Starik and Rands (1995) extended this idea to include values, as these act as a mechanism to unify and orient organisational units toward sustainability. Norms and shared values are essential to understand the sustainability of organisations, and provide links between the organisation and the environment and society (Starik and Rands, 1995).

Institutional theory is also based on the open systems assumption as described above. However, the central premise of institutional theory is that survival arises out of conformity to external rules and norms. Thus, the theory exa mines how external social and regulatory pressures influence organisational actions (Scott 1987). Due to the powerful nature of environmental influences, organisations seek to conform to environmental pressures as a way to secure stability, legitimacy and access to resources. Those organisations that are responsive to such institutional pressures are assumed to be more likely to survive (DiMaggio and Powell, 1983; McKay, 2001). In setting environmental strategy and structure, firms may choose action from a repertoire of possible options. However, the internal structure and culture of the firm reflect the dominant institutions of the organisational field, hence the range of that repertoire is bound by the rules, norms, and beliefs of the organisational field (Hoffman, 1997).

Based on the ‘systems’ view of organisations, the central premise of stakeholder theory is that there are specific interest groups in the outside environment, which have a stake in the behaviour and effectiveness of

that organisation (Freeman, 1984). Although stakeholder theory shares notions of power with both previously discussed theories, neither resource dependence theory nor institutional theory appears to suffice to explain the full range of stakeholder power. Both theories offer explanations of reactions to economic or formal/legal pressures, but fail to account for political pressures (Jonker and Foster, 2002): where environmental or social stakeholders are involved, there is neither resource dependency nor formal/legal pressure to conform (Frooman, 1999). The perception of the responsible managers influences the approach to stakeholders (e.g. Collison et al, 2003; Cormier et al, 2004; Sharma and Henriques, 2005), and it is argued that “responses to environmental pressures can vary widely among firms depending on managerial perceptions of environmental risks and opportunities … on their interpretation of the importance and relationship of the natural environment to their business activity” (Banerjee, 1998: p. 148). In explicitly describing the values and responsibilities of a firm, business codes can help by providing a framework for managers to guide their decisions, and simultaneously informing external stakeholders (Kaptein, 2004).

A number of scholars argue that current research and practice in corporate environ mentalism may be limited by the assumptions under which much is carried out (Porter, 2005). These authors therefore call for a revolutionary way of thinking about business regarding environment and society (e.g. Dyllick and Hockerts, 2002; Gladwin et al, 1995; Peattie, 2000; Shrivastava (1995a); Stern et al. (1995)). A variety of authors (e.g. Banerjee, 2001; Gladwin et al. 1995; Hoffman, 2000) have demonstrated how using traditional management theories (in particular institutional theory, strategic choice, transfor mational leadership) can hinder efforts to change to a more ‘green’ state of doing business at the institutional as well as the organisational level. Therefore, new perspectives, preferably from new domains, are required to challenge current assumptions and facilitate the transition of developing appropriate organisational values (Starkey and Crane, 2003).

From the above, we could conclude that shared values are a key component in attaining a shared vision of the Corporate Responsibility of an organisation and to guide interactions with stakeholders, and are formed by rules, norms and ethical behaviour standards from both inside and outside of the organisation.

However, there is academic and anecdotal evidence that the integration of corporate responsibility throughout the hierarchy of organisations is marginal, and even absent in some cases (e.g. Barakat, 2006b; Knox et al, 2005). A recent study by Barakat (2006b) suggested that among employees in three UK case studies there was a general absence of shared meaning with regards to key environmental themes and issues (although smaller clusters around hierarchical levels and some functional groups shared some experiences on some issues). There was no system for the identification and definition of environmental concepts, no explicit means by which concepts could be shared and discussed, and no mechanism to indicate to employees the concepts and definitions that would be acceptable and those that would not. Hence, employees experienced their firm’s corporate environmentalism predominantly in an individual manner. The perceived corporate orientation towards environmentalism followed this, and this study therefore offers some evidence that corporate environmental orientation can be perceived and experienced differently within the same organisation.

Furthermore, many researchers and practitioners in the Corporate Responsibility field (e.g. Banerjee et al, 2003; Juholin, 2004; Murphy, 1988) have argued (or assumed) that the vision and commitment of senior management is communicated clearly, and understood and incorporated by all staff within the organisation in the manner as it was initially intended (Preston, 2001; Ramus, 2001). Yet, there is little evidence that this assumption is grounded in practice (Barakat, 2006a; Knox et al, 1995). Even more so, there is evidence that (mainly lower-level) employees do not perceive their firm to be pro-active in its environmental and social responsibilities (e.g. Barakat, 2006a; Lingard et al, 2000; Ramasamy and Woan-Ting, 2004). Research suggests that since employees are not oblivious to the ethical climate of the company, this interaction affects the trust that employees have of their organisations and affects their commitment to it (Van Dyne et al, 1994; Fritz et al, 1999; Gross and Etzioni, 1985). Also, the employees’ experience of Corporate Responsibility appears to be significantly affected by their perception of the behaviours and attitudes of management, especially if an employee perceives an inconsistency between the immediate manager and the corporate policy (Ramus, 2001). The resultant dissatisfaction and lack of engagement could potentially impact the success of responsible initiatives (e.g. Preston, 2001; Ramus, 2001). Hence, it has become important to understand how Corporate Responsibility is interpreted by decision-makers (Banerjee, 2002) and decision implementers (Ramus and Steger, 2001).

6. Distinguish between a Financial Investor and a Strategic Investor explaining the role they play in a Company (10 marks).

In the not so distant past, there was little difference between financial and strategic investors. Investors of all colors sought to safeguard their investment by taking over as many management functions as they could. Additionally, investments were small and shareholders few. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. People invested in industries they were acquainted with first hand.

As markets grew, the scales of industrial production (and of service provision) expanded. A single investor (or a small group of investors) could no longer accommodate the needs even of a single firm. As knowledge increased and specialization ensued – it was no longer feasible or possible to micro-manage a firm one invested in. Actually, separate businesses of money making and business management emerged. An investor was expected to excel in obtaining high yields on his capital – not in industrial management or in marketing. A manager was expected to manage, not to be capable of personally tackling the various and varying tasks of the business that he managed.

Thus, two classes of investors emerged. One type supplied firms with capital. The other type supplied them with know-how, technology, management skills, marketing techniques, intellectual property, clientele and a vision, a sense of direction.

In many cases, the strategic investor also provided the necessary funding. But, more and more, a separation was maintained. Venture capital and risk capital funds, for instance, are purely financial investors. So are, to a growing extent, investment banks and other financial institutions.

The financial investor represents the past. Its money is the result of past – right and wrong – decisions. Its orientation is short term: an "exit strategy" is sought as soon as feasible. For “exit strategy” read quick profits. The financial investor is always on the lookout, searching for willing buyers for his stake. The stock exchange is a popular exit strategy. The financial investor has little interest in the company’s management. Optimally, his money buys for him not only a good product and a good market, but also a good management. But his interpretation of the rolls and functions of "good management" are very different to that offered by the strategic investor. The financial investor is satisfied with a management team which maximizes value. The price of his shares is the most important indication of success. This is "bottom line" short termism which also characterizes operators in the capital markets. Invested in so many ventures and companies, the financial investor has no interest, nor the resources to get seriously involved in any one of them. Micro-management is left to others – but, in many cases, so is macro-management. The financial investor participates in quarterly or annual general shareholders meetings. This is the extent of its involvement.

The strategic investor, on the other hand, represents the real long term accumulator of value. Paradoxically, it is the strategic investor that has the greater influence on the value of the company’s shares. The quality of management, the rate of the introduction of new products, the success or failure of marketing strategies, the level of customer satisfaction, the education of the workforce – all depend on the strategic investor. That there is a strong relationship between the quality and decisions of the strategic investor and the share price is small wonder. The strategic investor represents a discounted future in the same manner that shares do. Indeed, gradually, the balance between financial investors and strategic investors is shifting in favour of the latter. People understand that money is abundant and what is in short supply is good management. Given the ability to create a brand, to generate profits, to issue new products and to acquire new clients – money is abundant.

These are the functions normally reserved to financial investors:

Financial Management

The financial investor is expected to take over the financial management of the firm and to directly appoint the senior management and, especially, the management echelons, which directly deal with the finances of the firm.

1. To regulate, supervise and implement a timely, full and accurate set of accounting books of the firm reflecting all its activities in a manner commensurate with the relevant legislation and regulation in the territories of operations of the firm and with internal guidelines set from time to time by the Board of Directors of the firm. This is usually achieved both during a Due Diligence process and later, as financial management is implemented.

2. To implement continuous financial audit and control systems to monitor the performance of the firm, its flow of funds, the adherence to the budget, the expenditures, the income, the cost of sales and other budgetary items.

3. To timely, regularly and duly prepare and present to the Board of Directors financial statements and reports as required by all pertinent laws and regulations in the territories of the operations of the firm and as deemed necessary and demanded from time to time by the Board of Directors of the Firm.

4. To comply with all reporting, accounting and audit requirements imposed by the capital markets or regulatory bodies of capital markets in which the securities of the firm are traded or are about to be traded or otherwise listed.

5. To prepare and present for the approval of the Board of Directors an annual budget, other budgets, financial plans, business plans, feasibility studies, investment memoranda and all other financial and business documents as may be required from time to time by the Board of Directors of the Firm.

6. To alert the Board of Directors and to warn it regarding any irregularity, lack of compliance, lack of adherence, lacunas and problems whether actual or potential concerning the financial systems, the financial operations, the financing plans, the accounting, the audits, the budgets and any other matter of a financial nature or which could or does have a financial implication.

7. To collaborate and coordinate the activities of outside suppliers of financial services hired or contracted by the firm, including accountants, auditors, financial consultants, underwriters and brokers, the banking system and other financial venues.

8. To maintain a working relationship and to develop additional relationships with banks, financial institutions and capital markets with the aim of securing the funds necessary for the operations of the firm, the attainment of its development plans and its investments.

9. To fully computerize all the above activities in a combined hardware-software and communications system which will integrate into the systems of other members of the group of companies.

10. Otherwise, to initiate and engage in all manner of activities, whether financial or of other nature, conducive to the financial health, the growth prospects and the fulfillment of investment plans of the firm to the best of his ability and with the appropriate dedication of the time and efforts required.

Collection and Credit Assessment

1. To construct and implement credit risk assessment tools, questionnaires, quantitative methods, data gathering methods and venues in order to properly evaluate and predict the credit risk rating of a client, distributor, or supplier.

2. To constantly monitor and analyse the payment morale, regularity, non-payment and non-performance events, etc. – in order to determine the changes in the credit risk rating of said factors.

3. To analyse receivables and collectibles on a regular and timely basis.

4. To improve the collection methods in order to reduce the amounts of arrears and overdue payments, or the average period of such arrears and overdue payments.

5. To collaborate with legal institutions, law enforcement agencies and private collection firms in assuring the timely flow and payment of all due payments, arrears and overdue payments and other collectibles.

6. To coordinate an educational campaign to ensure the voluntary collaboration of the clients, distributors and other debtors in the timely and orderly payment of their dues.

The strategic investor is, usually, put in charge of the following:

Project Planning and Project Management

The strategic investor is uniquely positioned to plan the technical side of the project and to implement it. He is, therefore, put in charge of:

· The selection of infrastructure, equipment, raw materials, industrial processes, etc.

· Negotiations and agreements with providers and suppliers

· Minimizing the costs of infrastructure by deploying proprietary components and planning

· The provision of corporate guarantees and letters of comfort to suppliers

· The planning and erecting of the various sites, structures, buildings, premises, factories, etc.

· The planning and implementation of line connections, computer network connections, protocols, solving issues of compatibility (hardware and software, etc.)

· Project planning, implementation and supervision

Marketing and Sales

1. The presentation to the Board an annual plan of sales and marketing including: market penetration targets, profiles of potential social and economic categories of clients, sales promotion methods, advertising campaigns, image, public relations and other media campaigns. The strategic investor also implements these plans or supervises their implementation.

2. The strategic investor is usually possessed of a brandname recognized in many countries. It is the market leaders in certain territories. It has been providing goods and services to users for a long period of time, reliably. This is an important asset, which, if properly used, can attract users. The enhancement of the brand name, its recognition and market awareness, market penetration, co-branding, collaboration with other suppliers – are all the responsibilities of the strategic investor.

3. The dissemination of the product as a preferred choice among vendors, distributors, individual users and businesses in the territory.

4. Special events, sponsorships, collaboration with businesses.

5. The planning and implementation of incentive systems (e.g., points, vouchers).

6. The strategic investor usually organizes a distribution and dealership network, a franchising network, or a sales network (retail chains) including: training, pricing, pecuniary and quality supervision, network control, inventory and accounting controls, advertising, local marketing and sales promotion and other network management functions.

7. The strategic investor is also in charge of "vision thinking": new methods of operation, new marketing ploys, new market niches, predicting the future trends and market needs, market analyses and research, etc.

The strategic investor typically brings to the firm valuable experience in marketing and sales. It has numerous off the shelf marketing plans and drawer sales promotion campaigns. It developed software and personnel capable of analysing any market into effective niches and of creating the right media (image and PR), advertising and sales promotion drives best-suited for it. It has built large databases with multi-year profiles of the purchasing patterns and demographic data related to thousands of clients in many countries. It owns libraries of material, images, sounds, paper clippings, articles, PR and image materials, and proprietary trademarks and brand names. Above all, it accumulated years of marketing and sales promotion ideas which crystallized into a new conception of the business.

Technology

1. The planning and implementation of new technological systems up to their fully operational phase. The strategic partner’s engineers are available to plan, implement and supervise all the stages of the technological side of the business.

2. The planning and implementation of a fully operative computer system (hardware, software, communication, intranet) to deal with all the aspects of the structure and the operation of the firm. The strategic investor puts at the disposal of the firm proprietary software developed by it and specifically tailored to the needs of companies operating in the firm’s market.

3. The encouragement of the development of in-house, proprietary, technological solutions to the needs of the firm, its clients and suppliers.

4. The planning and the execution of an integration program with new technologies in the field, in collaboration with other suppliers or market technological leaders.

Education and Training

The strategic investor is responsible to train all the personnel in the firm: operators, customer services, distributors, vendors, sales personnel. The training is conducted at its sole expense and includes tours of its facilities abroad.

The entrepreneurs – who sought to introduce the two types of investors, in the first place – are usually left with the following functions:

Administration and Control

1. To structure the firm in an optimal manner, most conducive to the conduct of its business and to present the new structure for the Board’s approval within 30 days from the date of the GM’s appointment.

2. To run the day to day business of the firm.

3. To oversee the personnel of the firm and to resolve all the personnel issues.

4. To secure the unobstructed flow of relevant information and the protection of confidential organization.

5. To represent the firm in its contacts, representations and negotiations with other firms, authorities, or persons.

This is why entrepreneurs find it very hard to cohabitate with investors of any kind. Entrepreneurs are excellent at identifying the needs of the market and at introducing technological or service solutions to satisfy such needs. But the very personality traits which qualify them to become entrepreneurs – also hinder the future development of their firms. Only the introduction of outside investors can resolve the dilemma. Outside investors are not emotionally involved. They may be less visionary – but also more experienced.

They are more interested in business results than in dreams. And – being well acquainted with entrepreneurs – they insist on having unmitigated control of the business, for fear of losing all their money. These things antagonize the entrepreneurs. They feel that they are losing their creation to cold-hearted, mean spirited, corporate predators. They rebel and prefer to remain small or even to close shop than to give up their cherished freedoms. This is where nine out of ten entrepreneurs fail – in knowing when to let go.

MBA Semester 4MB0036 – Strategic Management & Business Policy

Assignment Set – 2

1. What is the purpose of a Business Plan? Explain the features of the component of the Plan dealing with the Company and its product description (10 marks)

A business plan is a detailed description of how an organization intends to produce, market and sell a product or service. Whether the business is housing, commercial or some other enterprise, a good business plan describes to others and to your own board of directors, management and staff the details of how you intend to operate and expand your business.

A solid business plan describes who you are, what you do, how you will do it, your capacity to do it, what financial resources are necessary to carry it out, and how you intend to secure those resources. A well-written plan will serve as a guide through the start-up phase of the business. It can also establish benchmarks to measure the performance of your business venture in comparison with expectations and industry standards. And most important, a good business plan will help to attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task.

A good business plan will help attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task.

The first step in planning a new business venture is to establish goals that you seek to achieve with the business. You can establish these goals in a number of ways, but an inclusive and ordered process like an organizational strategic planning session or a comprehensive neighborhood planning process may be best. The board of directors of your organization should review and approve the goals, because these goals will influence the direction of the organization and require the allocation of valuable staff and financial resources. Your goals will serve as a filter to screen a wide range of possible business opportunities. If you fail to establish clear goals early in the process, your organization may spend substantial time and resources pursuing potential business ventures that may be financially viable but do not serve the mission of your organization in other important ways. A liquor store on the corner may be a clear money-maker; however, it may not be the retail to assist your community desires.

In describing your company be sure to include what type of business you are planning (homeownership development, wholesale, retail, manufacturing

or service) and the legal structure (corporation or partnership). You should discuss why you are creating this new venture, referencing the goals you set at the beginning of the business planning process. Also include a description of your non-profit organization, the role it has played in developing this new venture and the on-going role, if any, it will play in operations. Give the reader a brief overview of the industry, describing historic and current growth trends.

Whenever possible, provide documentation or references supporting your trend analysis such as articles from business-oriented newspapers and magazines, research journals or other publications. Include these references in the attachments of your business plan.

Product or Service

After describing your company and its industry context, describe the products or services you plan to provide. Focus on what distinguishes your product or service from the rest of the market. Discuss what will attract consumers to your product or service. Provide as much detail as necessary to inform the reader about the particular characteristics of your product that distinguish it from its competition – many nonprofits, for example, expect to produce higher-quality housing than otherwise exists in the area. Mention any distinctive elements in the manufacture of the product, such as being “hand-made by a particular people from a specific area.” If you are providing a service, explain the steps you will take to provide a service that is better than your competition.

Price

Provide a realistic estimate of the price for your product or service, and discuss the rationale behind that price. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that your product or service may not be of sufficient quality or that you will not be able to maintain profitability in the long run. Describe where this price positions you in the marketplace: at the high end, low end or in the middle of the existing range of prices for a similar product or service.

In other sections of the plan you will discuss the target market for your product or service and also provide additional details on how the price of your product fits into the overall financial projections for the enterprise.

Place

Describe the location where you will produce or distribute your product or provide your service. Discuss the advantages of the location, such as its accessibility, surrounding amenities and other characteristics that may enhance your business.

Depending on your anticipated customer base, accessibility to your location via public transportation could affect the marketability of your product or service.

Customers

In this section of your business plan, you will describe the customer base or market for your product or service. In addition to providing a detailed description of your customer base, you will also need to describe your competition (other local developers or nearby businesses providing a similar service to your potential customer base).

Who will purchase your product or use your service? How large is your customer base? Define the characteristics of your target market in terms of its:

· Demographics – Measures of age, gender, race, religion and family size.

· Geography – Measures based on location.

· Socioeconomic Status – Measures based on individual or household annual income.

Provide statistical data to describe the size of your target market. Sources for this information may include recent data from the Bureau of Statistics, state or local census data, or information gathered by your organization, such as membership lists, neighborhood surveys and group or individual interviews. Be sure to list the sources for your data, as this will further validate your market assumptions. Include any relevant information regarding the growth potential for your target market if your business is expected to rely on growth. Cite any research forecasting population increases in your target market or other trends and factors that may increase the demand for your product or service.

Competition

Discuss how people identified in your target market currently meet their need for your product or service. What other businesses exist in your area that are similar to your proposed venture? For example, for a housing business, what are the local markets for purchase and rental? How much are people currently paying for similar products or services? Briefly describe what differentiates your proposed venture from these existing businesses and discuss why you are entering this market.

Sales Projections

Present an estimate of how many people you expect will purchase your product or service. Your estimate should be based on the size of your market, the characteristics of your customers and the share of the market you will gain over your competition. Project how many units you will sell at a specified price over several years. The initial year should be broken down in monthly or quarterly increments. Account for initial presentation and market penetration of your product and any seasonal variations in sales, if appropriate.

2. Write short notes on : a) sales projections b) importance of creativity in Business (10 marks).

a) Sales Projections

Present an estimate of how many people you expect will purchase your product or service. Your estimate should be based on the size of your market, the characteristics of your customers and the share of the market you will gain over your competition. Project how many units you will sell at a specified price over several years. The initial year should be broken down in monthly or quarterly increments. Account for initial presentation and market penetration of your product and any seasonal variations in sales, if appropriate.

Your business plan is not just a funding tool, but also a blueprint for how your business should operate. The following are steps for developing sales projections.

Step I:

Estimate

For each product or service, estimate the number of people who are likely to buy and when they will buy it. You can get this information from asking your likely customers about their possible use of your business, or you can base your estimates on your knowledge of the market.

Step 2:

Use a Calendar

Estimate your sales and number of customers served during one week. Using the totals for a week, make projections for each month. For the first few months, keep in mind that business will start off slowly before people become more aware of your business. Use will most likely increase as people learn about your products and services. Seasonal variations may affect your business as well. You will use these numbers to project your equipment, supply and staffing needs, as well as income.

b) Importance of creativity in business :

Write down your ideas.

You have a ton every day.

But most of the time, you can’t remember them by the day’s end.

Don’t let spelling and grammar issues or relentless self-editing stop you.

Get your ideas on paper (Let someone else edit it.)

Go retro: Carry a notebook, pen, and calendar into your meetings.

Look up at people.

Story First, Technology Last.

Don’t invest in a presentation class called “How to Use PowerPoint”…. …until you’ve taken a class called “How to Tell Stories and Connect with Your Audience”.

Simple Creative Exercise…

Simplify everything. Your life, your home, your office, your desk, your processes, vision, policy, procedures. Everything.

Fixing Problems is Creative.

Your job is to fix problems, not to complain.

Brainstorming

Don’t tell people that their ideas are bad, especially if you don’t have a better one.

It’s only your life’s work.

Never say, “It’s not my job to be creative.”

How to Lose an Audience…

· Show your audience slides with columns of numbers.

· Refuse to tell them a story about the meaning of the numbers.

· Do not read your speech or presentation.

· Instead, read your audience.

How about a Show?

Try “giving a performance” instead of merely “giving a presentation.”

Everyone in Sales Knows…

· Tell stories.

· Don’t just provide data.

Avoid Meetings.

Do not attend more than two meetings a day, or else you will never get any real creative work done.

Get Fresh Ideas.

Leave the office building at least once a day.

Another Lame Excuse…

Designers should put more of their passion into designing great work, instead of endless (boring) discussions about the superiority of the Macintosh over the PC!

Creativity: Use it or Lose it.

Create something every day.

Creativity takes place every day, not once in a while.

It’s not rare.

It’s just been mystified – Own your creativity.

3. What factors are to be taken into account in a crisis communications strategy? (10 marks)

1. Has a crisis communications strategy been developed?

2. Are communications timely, honest, and objective?

3. Are communications with all employees occurring at approximately the same time?

4. Are regular updates provided, including notification of when the next update will be issued?

5. Has a primary spokesperson and back-up spokespersons been designated who will manage and disseminate crisis communications to the media and others?

4. What elements should be included in a Marketing Plan under Due Diligence while seeking investment in for your Company? (10 marks)

The following elements must be included in a Marketing Plan under Due Diligence :

· A brief history of the business (to show its track performance and growth)

· Points regarding the political, legal (licences) and competitive environment

· A vision of the business in the future

· Products and services and their uses

· Comparison of the firm’s products and services to those of the competitors

· Warranties, guarantees and after-sales service

· Development of new products or services

· A general overview of the market and market segmentation

· Is the market rising or falling (the trend: past and future)

· What customer needs do the products / services satisfy

· Which markets segments do we concentrate on and why

· What factors are important in the customer’s decision to buy (or not to buy)

· A list of the direct competitors and a short description of each

· The strengths and weaknesses of the competitors relative to the firm

· Missing information regarding the markets, the clients and the competitors

· Planned market research

· A sales forecast by product group

· The pricing strategy (how is pricing decided)

· Promotion of the sales of the products (including a description of the sales force, sales-related incentives, sales targets, training of the sales personnel, special offers, dealerships, telemarketing and sales support). Attach a flow chart of the purchasing process from the moment that the client is approached by the sales force until he buys the product.

· Marketing and advertising campaigns (including cost estimates) – broken by market and by media

· Distribution of the products

· A flow chart describing the receipt of orders, invoicing, shipping.

· Customer after-sales service (hotline, support, maintenance, complaints, upgrades, etc.)

· Customer loyalty (example: churn rate and how is it monitored and controlled).

5. Distinguish between Joint Ventures and Licensing, explaining the relative advantages and disadvantages of each (10 marks)

Licensing

One basic choice is whether you should actively exploit your IP rights yourself, or to keep your IP rights and license them to others to use, or sell or assign the rights to another person. You can, in principle, make different choices in different countries for exploiting IP rights for the same underlying invention. If you are based in Malaysia, you could in theory decide to exploit your patent yourself in the East Asian region, grant a licence a Canadian company to use the invention in North America, and sell or assign the rights in Europe to a Danish company – whether or not this is the best approach in practice is a different matter, of course.

A licence is a grant of permission made by the patent owner to another to exercise any specified rights as agreed. Licensing is a good way for an owner to benefit from their work as they retain ownership of the patented invention while granting permission to others to use it and gaining benefits, such as financial royalties, from that use. However, it normally requires the owner of the invention to invest time and resources in monitoring the licensed use, and in maintaining and enforcing the underlying IP right.

The patent right normally includes the right to exclude others from making, using, selling or importing the patented product, and similar rights concerning patented processes. The license can therefore cover the use of the patented invention in many different ways.

For instance, licences can be exclusive or non-exclusive. If a patent owner grants a non-exclusive licence to Company A to make and sell their patented invention in Malaysia, the patent owner would still be able to also grant Company B another non-exclusive for the same rights and the same time period in Malaysia. In contrast, if a patent owner granted an exclusive licence to Company A to make and sell the invention in Malaysia, they would not be able to give a licence to

anyone else in Malaysia while the licence with Company A remained in force.

Licenses are normally confined to a particular geographical area – typically, the jurisdiction in which particular IP rights have effect. You can grant different exclusive licences for different territories at the same time. For example, a patent owner can grant an exclusive licence to make and sell their patented invention in Malaysia for the term of the patent, and grant a separate exclusive licence to manufacture and sell their patented invention in India for the term of the patent.

Separate licences can be granted for different ways of using the same technology. For example, if an inventor creates a new form of pharmaceutical delivery, she could grant an exclusive licence to one company to use the technology for an arthritis drug, a separate exclusive licence to another company to use it for relief of cold symptoms, and a further exclusive licence to a third company to use it for veterinary pharmaceuticals.

A licence is merely the grant of permission to undertake some of the actions covered by intellectual property rights, and the patent holder retains ownership and control of the basic patent.

An assignment of intellectual property rights is the sale of a patent right, or a share of the patent.

It should be remembered that the person who makes an invention can be different to the person who owns the patent rights in that invention. If an inventor assigns their patent rights to someone else they no longer own those rights. Indeed, they can be in infringement of the patent right if they continue to use it.

Patent licences and assignments of patent rights do not have to cover all patent rights together.

Licences are often limited to specific rights, territories and time periods. For example, a patent owner could exclusively licence only their importation right to a company for the territory of Indonesia for 12 months. If an inventor owns patents on the same invention in five different countries, they could assign (or sell) these patents to five different owners in each of those countries. Portions of a patent right can also be assigned – so that in order to finance your invention, you might choose to sell a half-share to a commercial partner.

If you assign your rights, you normally lose any possibility of further licensing or commercially exploiting your intellectual property rights. Therefore, the amount you charge for an assignment is usually considerably higher than the royalty fee you would charge for a patent licence. When assigning the rights, you might seek to negotiate a licence from the new owner to ensure that you can continue to use your invention. For instance, you might negotiate an arrangement that gives you licence to use the patented invention in the event that you come up with an improvement on your original invention and this falls within the scope of the assigned patent. Equally, the new owner of the assigned patent might want to get access to your subsequent improvements on the invention.

Joint Venture

Rather than simply exploit your IP rights by licensing or assignment, you might choose to set up a new legal mechanism to exploit your technology. Typically this can be a partnership expressed through a joint venture agreement or a new corporation, such as a start-up or spin-off company.

These options require much more work on your part than licensing or assigning your intellectual property rights. This could be a desirable choice in cases where:

– you want to keep your institute’s research activities separate from the development and commercialisation of technology, especially when your institute has a public interest focus or an educational role; or

– you need to attract financial support from those prepared to take a risk with an unproven technology (‘angel investors’ or ‘venture capitalists’), and they will only take on a long-term risk if they can get a share of future profits of the technology.

In working out the right vehicle for your technology, you will normally need specific legal advice from a commercial lawyer, preferably one with experience in technology and commercialisation in your jurisdiction. The laws governing partnerships and companies differ considerably from one country to another, and this discussion is only intended to give a general flavour of the various options.

A joint venture agreement involves a formal, legally binding commitment between two or more partners to work together on a shared enterprise. It is normally created for a specific purpose (for example, to commercialise a specific new technology) and for a limited duration. For instance, you might sign a partnership agreement with a manufacturing company to develop and market a product based on your invention. Before entering into a joint venture agreement, you need to check out possible commercial partners and make sure that the objectives of your potential commercial partners are consistent with your objectives. In the joint venture agreement, the partners typically agree to share the benefits, as well as the risks and liabilities, in a specified way.

But this kind of partnership isn’t normally able in itself to enter legal commitments, or own IP in its own right, so that the partners remain directly legally responsible for any losses or other liabilities that the partnership’s operations create. In other words, a partnership which is not a corporation, a company or a specific institution doesn’t really separately exist as a legal entity.

By contrast, a company is a new legal entity (a ‘legal person’ recognised by the law as having its own legal identity) which can own and license IP and enter into legal commitments in its own right. A spin-off company is an independent company created from an existing legal body – for example, if a research institute decided to turn its licensing division or a particular laboratory into a separate company. A start-up company is a general term for a new company in its early stages of development. If a company is defined as a limited liability company, the partners or investors normally cannot lose more than their investment in the company (but officeholders in the company might be personally responsible for their actions in the way they manage the company). This separate legal identity means that a start-up company can be a useful way of developing and commercialising a new technology based on original research, while keeping the main research effort of an institute focussed on broader scientific and public objectives, and insulated from the commercial risks and pressures of the commercialisation process. At the same time, the research institute can benefit from the commercialisation of its research, through receiving its share of the profits and growth in assets of the spin-off company, thus strengthening the institute’s capacity to do scientific research.

The company is normally owned through shares (its ‘equity’). These effectively represent a portion of the assets and entitlement to profits of the company. Investors can purchase shares in the company, which is one

way of bringing in new financial resources to support the development of the technology – in exchange, the investors stand to benefit from the growth in the company’s worth, as their shares proportionately rise in value, and to receive a portion of any profits produced by the company’s operations, commensurate with the number of shares they own. If it is a public company, shares in the company can be bought and sold on the open stock market. An initial public offering is when the shares in a start up company are first made available to the public to purchase. A private company’s shares, by contrast, are not traded on the open market (but can still be bought and sold).

The option of starting up your own company to manufacture and market your patented invention requires you to have business skills, marketing skills, management skills and substantial capital to draw on for factory premises, hiring staff and so on. But it also can offer a mechanism for attracting financial backing for research, development and marketing, which can improve access to the necessary resources and expertise.

Which model of commercialisation is best for you?

Each new technology and associated package of IP rights is potentially difference, and the mechanism you choose for commercialisation should take into account the particular features of the technology. One basic consideration is to what extent you, as originator of the technology, wish to be involved and to invest in the subsequent development of the technology. You will need to compare the advantages and disadvantages of each model of commercialisation. Generally speaking, the higher degree of risk and commitment of finance and resources you can invest, the higher the degree of control you can secure over exploitation of the technology invention, and the higher the financial return to your institution may be.

There are many possible variations on each of these general models, and in practice they can overlap. In deciding which model of commercialisation is best for you, it is always a good idea to seek commercial or legal advice.

Remember that IPRs alone do not guarantee you a financial return on your invention. You need to make good commercial decisions to benefit financially from your intellectual property rights.

Properly managed, intellectual property rights should not be a burden but should yield a return from your hard work in creating an invention.

6. You wish to commercialize your invention. What factors would you weigh in choosing an appropriate course? (10 marks)

 Commercialization Mechanisms

In summary, a technology licensing agreement will normally:

· Name the intellectual property rights being licensed.

· Make it clear who retains ownership of the intellectual property rights.

· State how the royalty rates will be worked out.

· Set out when royalties will be paid, including milestone payments.

· Set out which territory the licence applies to.

· Set out whether the licence is exclusive or non-exclusive.

· Set out whether the licensee can licence the intellectual property rights to others.

· State who will pay the costs of maintaining the patent rights.

· Set out arrangements for dealing with improvements and new applications of the new technology.

· Set out how confidentiality issues will be dealt with and the rights of the inventor to publish their research.

· Provide for an insurance, release and indemnity clauses.

· Provide for dispute resolution and termination.

Choosing a potential licensee can be very important, as you are relying on this commercial partner to deliver the benefits of your technology – not only the commercial benefits, but the benefits to society that might come from the full dissemination and widest possible use of your technology.

The choice should not just be based on willingness to pay a higher royalty. A partner who has a convincing business plan and establishes a good working relationship with you is likely to be more valuable. If you are selecting a licensee, you may need to consider a host of factors, including:

· Does the company have experience and proven success in developing new technologies and bringing products to market?

· What kind of R&D and business plan does the company have? Are there realistic plans for developing and distributing the product based on your technology? Do these plans have well-defined milestones that could be built into a license agreement?

· Do you want to favour development of the technology in your own country? Is the company willing and able to invest locally in facilities for exploiting the technology?

· Are the resources, expertise and reputation of a large, established company needed, or are the flexibility and lower costs of a smaller, start-up company more appropriate for the technology?

· Are you planning to export your technology or otherwise develop overseas markets? Is your potential partner established overseas, or have experience in foreign markets?

· Is your commercial partner likely to be able to take up new applications and improvements on the technology that your research is working towards? Are they able to apply the technology in all the potential areas of use?

MBA Semester 4MB0037 – International Business Management

Assignment Set – 1

Q.1 a. How has liberalizing trade helped international business? (6 marks) b. What are the merits and demerits of international trade? (4 marks)

Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. In contrast, trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years.

Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998.There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not.

Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests that trade protection provides. Moreover, the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. New jobs are created for unskilled workers, raising them into the middle class. Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization.

The potential gains from eliminating remaining trade barriers are considerable. Estimate of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. About two-thirds of these gains would accrue to industrial countries. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. Moreover, developing countries would

gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers.

Although there are benefits from improved access to other countries’ markets, countries benefit most from liberalizing their own markets. The main benefits for industrial countries would come from the liberalization of their agricultural markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. The group of low-income countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies.

Advantages

· Enhance your domestic competitiveness

· Increase sales and profits

· Gain your global market share

· Reduce dependence on existing markets

· Exploit international trade technology

· Reduce dependence on existing markets

· Exploit international trade technology

· Extend sales potential of existing products

· Stabilize seasonal market fluctuations

· Enhance potential for expansion of your business

· Sell excess production capacity

· Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:

· You may need to wait for long-term gains

· Hire staff to launch international trading

· Modify your product or packaging

· Develop new promotional material

· Incur added administrative costs

· Dedicate personnel for travelling

· Wait long for payments

· Apply for additional financing

· Deal with special licenses and regulations

Q. 2 Discuss the impact of culture on International Business. (10 marks)

Culture and International Business

In this new millennium, few executives can afford to turn a blind eye to global business opportunities. Japanese auto-executives monitor carefully what their European and Korean competitors are up to in getting a bigger slice of the Chinese auto-market. Executives of Hollywood movie studios need to weigh the appeal of

an expensive movie in Europe and Asia as much as in the US before a firm commitment. The globalizing wind has broadened the mindsets of executives, extended the geographical reach of firms, and nudged international business (IB) research into some new trajectories. One such new trajectory is the concern with national culture. Whereas traditional IB research has been concerned with economic/ legal issues and organizational forms and structures, the importance of national culture – broadly defined as values, beliefs, norms, and behavioural patterns of a national group – has become increasingly important in the last two decades, largely as a result of the classic work of Hofstede (1980). National culture has been shown to impact on major business activities, from capital structure (Chui et al., 2002) to group performance (Gibson, 1999). For reviews, see’ Boyacigiller and Adler’ (1991) and ‘Earley and Gibson’ (2002).

The purpose of this Unit is to provide a state-of-the-art review of several recent advances in culture and IB research, with an eye toward productive avenues for future research. It is not our purpose to be comprehensive; our goal is to spotlight a few highly promising areas for leapfrogging the field in an increasingly boundary-less business world. We first review the issues surrounding cultural convergence and divergence, and the processes underlying cultural changes. We then examine novel constructs for characterizing cultures, and how to enhance the precision of cultural models by pinpointing when the effects of culture are important. Finally, we examine the usefulness of experimental methods, which are rarely employed in the field of culture and IB. A schematic summary of our coverage is given in Table 2.1, which suggests that the topics reviewed are loosely related, and that their juxtaposition in the present paper represents our attempt to highlight their importance rather than their coherence as elements of an integrative framework.

Cultural change, convergence and divergence in an era of partial globalization

An issue of considerable theoretical significance is concerned with cultural changes and transformations taking place in different parts of the world. In fact, since the landmark study of Haire et al. (1966) and the publication of Industrialism and Industrial Man by Kerr et al. (1960), researchers have continued to search for similarities in culture-specific beliefs and attitudes in various aspects of work related attitudes and behaviours, consumption patterns, and the like. If cultures of the various locales of the world are indeed converging (e.g., Heuer et al., 1999), IB-related practices would indeed become increasingly similar. Standard, culture-free business practices would eventually emerge, and inefficiencies and complexities associated with divergent beliefs and practices in the past era would disappear. In the following section, we review the evidence on the issue and conclude that such an outlook pertaining to the convergence of various IB practices is overly optimistic.

Q.3. a. Explain the brief structure of WTO. (5 marks) b. Highlight the drawbacks of GATT. (5 marks)

Structure of World Trade Organization (WTO)

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership.

Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all members’ parliaments.

The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years.

Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.

At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council.

Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.

Drawbacks of GATT

– The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s.

– The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it as a permanent commitment.

– The GATT rules applied to trade in merchandise goods. In addition to goods.

– GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plural-lateral, and therefore selective, nature.

– The dispute settlement system is susceptible to blockages in GATT system.

- The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all GATT member countries to accede to the WTO and permitting an overlap of activity in areas like dispute settlement. Moreover, GATT lives on as "GATT 1994", the amended and up-dated version of GATT 1947, which is an integral part of the WTO Agreement and which continues to provide the key disciplines affecting international trade in goods.

Q.4. a. Give a short note on the regional economic integration. (5 marks) b. Mention the benefits of WTO. (5 marks)

Regional Economic Integration

Regional integration can take many forms, and nowhere is this more evident than in the vastly different integration processes taking place in the regions of Europe and East Asia. The subject of this paper is regional integration as it has developed in East Asia with a focus on the drivers of that integration. While the paper is not intended as a direct comparison of integration in East Asia and Europe, it will include some comparisons between the two regions.

Integration in East Asia has progressed very slowly and is still in an early stage despite that the process has continued for decades. In fact, it could be said that the process began centuries ago – even as far back as the 15th century. By comparison, European integration has progressed steadily and has gradually deepened over the last 50 years to reach an advanced stage today with a common currency and well-developed regional institutions. Thus, the speed of progression and the level of integration attained in the two regions are quite dissimilar.

In addition to these differences, the drivers behind the integration process in each region are different. In Europe, the origins of integration have been institutional in nature, and the development of institutions has been prominent throughout the process. Thus, regional institutions have been the driving force behind integration in Europe. In East Asia, the development of regional institutions has also occurred; however, progress in this area has been slow and the few existing institutions are fairly weak and ineffective. Nevertheless, regional integration is taking place in East Asia, but the driving force is the market rather than policy or institutions. Corporations and the production networks they have established are driving integration in East Asia.

Ten Benefits of WTO

1. The system helps to keep the peace

This sounds like an exaggerated claim, and it would be wrong to make too much of it. Nevertheless, the system does contribute to international peace, and if we understand why, we have a clearer picture of what the system actually does.

Peace is partly an outcome of two of the most fundamental principles of the trading system: helping trade to flow smoothly and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. It is also an outcome of the international confidence and cooperation that the system creates and reinforces.

History is littered with examples of trade disputes turning into war. One of the most vivid is the trade war of the 1930s when countries competed to raise trade barriers in order to protect domestic producers and retaliate against each others’ barriers. This worsened the Great Depression and eventually played a part in the outbreak of World War 2.

Two developments immediately after the Second World War helped to avoid a repeat of the pre-war trade tensions. In Europe, international cooperation developed in coal, and in iron and steel. Globally, the General Agreement on Tariffs and Trade (GATT) was created.

Both have proved successful, so much so that they are now considerably expanded – one has become the European Union, the other the World Trade Organization (WTO).

2. The system allows disputes to be handled constructively

As trade expands in volume, in the number of products traded, and in the numbers of countries and companies trading, there is a greater chance that disputes will arise. The WTO system helps resolve these disputes peacefully and constructively.

There could be a down side to trade liberalization and expansion. More trade means more possibilities for disputes to arise. Left to themselves, those disputes could lead to serious conflict. But in reality, a lot of international trade tension is reduced because countries can turn to organizations, in particular the WTO, to settle their trade disputes.

Before World War 2 that option was not available. After the war, the world’s community of trading nations negotiated trade rules which are now entrusted to the WTO. Those rules include an obligation for members to bring their disputes to the WTO and not to act unilaterally.

When they bring disputes to the WTO, the WTO’s procedure focuses their attention on the rules. Once a ruling has been made, countries concentrate on trying to comply with the rules, and perhaps later renegotiating the rules – not on declaring war on each other.

Around 300 disputes have been brought to the WTO since it was set up in 1995. Without a means of tackling these constructively and harmoniously, some could have led to more serious political conflict.

The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who is right or wrong. Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken.

The increasing number of disputes brought to GATT and its successor, the WTO, does not reflect increasing tension in the world. Rather, it reflects the closer economic ties throughout the world, the GATT/WTO’s expanding membership and the fact that countries have faith in the system to solve their differences.

Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim to conform to the agreements and commitments that they themselves negotiated.

3. A system based on rules rather than power makes life easier for all

The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller countries more voice, and at the same time freeing the major powers from the complexity of having to negotiate trade agreements with each of their numerous trading partners

Decisions in the WTO are made by consensus. The WTO agreements were negotiated by all members, were approved by consensus and were ratified in all members’ parliaments. The agreements apply to everyone. Rich and poor countries alike have an equal right to challenge each other in the WTO’s dispute settlement procedures.

This makes life easier for all, in several different ways. Smaller countries can enjoy some increased bargaining power. Without a multilateral regime such as the WTO’s system, the more powerful countries would be freer to impose their will unilaterally on their smaller trading partners. Smaller countries would have to deal with each of the major economic powers individually, and would be much less able to resist unwanted pressure.

In addition, smaller countries can perform more effectively if they make use of the opportunities to form alliances and to pool resources. Several are already doing this.

There are matching benefits for larger countries. The major economic powers can use the single forum of the WTO to negotiate with all or most of their trading partners at the same time. This makes life much simpler for the bigger trading countries. The alternative would be continuous and complicated bilateral negotiations with

dozens of countries simultaneously. And each country could end up with different conditions for trading with each of its trading partners, making life extremely complicated for its importers and exporters.

The principle of non-discrimination built into the WTO agreements avoids that complexity. The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime.

And these agreed rules give governments a clearer view of which trade policies are acceptable.

4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between, are affected by trade policies.

Protectionism is expensive: it raises prices. The WTO’s global system lowers trade barriers through negotiation and applies the principle of non-discrimination. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services, and ultimately a lower cost of living.

There are plenty of studies showing just what the impacts of protectionism and of freer trade are. These are just a few figures:

Food is cheaper

When you protect your agriculture, the cost of your food goes up – by an estimated $1,500 per year for a family of four in the European Union (1997); by the equivalent of a 51% tax on food in Japan (1995); by $3 billion per year added to US consumers’ grocery bills just to support sugar in one year (1988).

Negotiating agricultural trade reform is a complex undertaking. Governments are still debating the roles agricultural policies play in a range of issues from food security to environmental protection.

But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders. And in 2000, new talks started on continuing the reform in agriculture. These have now been incorporated into a broader work programme, the Doha Development Agenda, launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001.

Clothes are cheaper

Import restrictions and high customs duties combined to raise US textiles and clothing prices by 58% in the late 1980s.

UK consumers pay an estimated £500 million more per year for their clothing because of these restrictions. For Canadians the bill is around C$780 million. For Australians it would be a$300 annually per average family if Australian customs duties had not been reduced in the late 1980s and early 1990s.

The textiles and clothing trade is going through a major reform – under the WTO – that will be completed in 2005. The programme includes eliminating restrictions on quantities of imports.

If customs duties were also to be eliminated, economists calculate the result could be a gain to the world of around $23 billion, including $12.3 billion for the US, $0.8 billion for Canada, $2.2 billion for the EU and around $8 billion for developing countries.

The same goes for other goods

When the US limited Japanese car imports in the early 1980s, car prices rose by 41% between 1981 and 1984 – nearly double the average for all consumer products. The objective was to save American jobs, but the higher prices were an important reason why one million fewer new cars were sold, leading to more job losses.

If Australia had kept its tariffs at 1998 levels, Australian customers would pay on average a$2,900 more per car today. In 1995, aluminium users in the EU paid an extra $472 million due to tariff barriers.

One of the objectives of the Doha Development Agenda (DDA) is another round of cuts in tariffs on industrial products, i.e. manufactured and mining products. Some economists, Robert Stern, Alan Deardorff and Drusilla Brown, predict that cutting these by one third would raise developing countries’ income by around $52 billion.

… and services

Liberalization in telephone services is making phone calls cheaper – in the 1990s by 4% per year in developing countries and 2% per year in industrial countries, taking inflation into account.

In China, competition from a second mobile phone company was at least part of the reason for a 30% cut in the price of a call. In Ghana the cut was 50%.

The group of economists led by Robert Stern estimates that lowering services barriers by one third under the Doha Development Agenda would raise developing countries’ incomes by around $60 billion.

And so it goes on. The system now entrusted to the WTO has been in place for over 50 years.

In that time there have been eight major rounds of trade negotiations. Trade barriers around the world are lower than they have ever been in modern trading history. They continue to fall, and we are all benefiting.

5. It gives consumers more choice and a broader range of qualities to choose from

Think of all the things we can now have because we can import them: fruits and vegetables out of season, foods, clothing and other products that used to be considered exotic, cut flowers from any part of the world, all sorts of household goods, books, music, movies, and so on.

Think also of the things people in other countries can have because they buy exports from us and elsewhere. Look around and consider all the things that would disappear if all our imports were taken away from us. Imports allow us more choice – both more goods and services to choose from, and a wider range of qualities. Even the quality of locally – produced goods can improve because of the competition from imports.

The wider choice isn’t simply a question of consumers buying foreign finished products. Imports are used as materials, components and equipment for local production.

This expands the range of final products and services that are made by domestic producers, and it increases the range of technologies they can use. When mobile telephone equipment became available, services sprang up even in the countries that did not make the equipment, for example.

Sometimes, the success of an imported product or service on the domestic market can also encourage new local producers to compete, increasing the choice of brands available to consumers as well as increasing the range of goods and services produced locally.

If trade allows us to import more, it also allows others to buy more of our exports. It increases our incomes, providing us with the means of enjoying the increased choice.

6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes – national incomes and personal incomes. But some adjustment is necessary.

The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal were between $109 billion and $510 billion added to world income (depending on the assumptions of the calculations and allowing for margins of error).

More recent research has produced similar figures. Economists estimate that cutting trade barriers in agriculture, manufacturing and services by one third would boost the world economy by $613 billion – equivalent to adding an economy the size of Canada to the world economy.

In Europe, the EU Commission calculates that over 1989 – 93 EU incomes increased by 1.1–1.5% more than they would have done without the Single Market.

So trade clearly boosts incomes.

Trade also poses challenges as domestic producers face competition from imports. But the fact that there is additional income means that resources are available for governments to redistribute the benefits from those who gain the most – for example to help companies and workers adapt by becoming more productive and competitive in what they were already doing, or by switching to new activities.

7. Trade stimulates economic growth and that can be good news for employment

Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower trade barriers have been good for employment. But the picture is complicated by a number of factors. Nevertheless, the alternative – protectionism – is not the way to tackle employment problems.

This is a difficult subject to tackle in simple terms. There is strong evidence that trade boosts economic growth, and that economic growth means more jobs. It is also true that some jobs are lost even when trade is expanding. But a reliable analysis of this poses at least two problems.

First, there are other factors at play. For example, technological advance has also had a strong impact on employment and productivity, benefiting some jobs, hurting others.

Second, while trade clearly boosts national income (and prosperity), this is not always translated into new employment for workers who lost their jobs as a result of competition from imports.

The picture is not the same all over the world. The average length of time a worker takes to find a new job can be much longer in one country than for a similar worker in another country experiencing similar conditions.

In other words, some countries are better at making the adjustment than others. This is partly because some countries have more effective adjustment policies. Those without effective policies are missing an opportunity.

There are many instances where the facts show that the opportunity has been grasped – where freer trade has been healthy for employment. The EU Commission calculates that the creation of its Single Market means that there are somewhere in the range of 300,000 – 900,000 more jobs than there would be without the Single Market.

Often, job prospects are better in companies involved in trade. In the United States, 12 million people owe their jobs to exports; 1.3 million of those jobs were created between 1994 and 1998. And those jobs tend to be better – paid with better security. In Mexico, the best jobs are those related to export activities: sectors which export 60 per cent or more of their production, pay wages 39% higher than the rest of the economy and maquiladora (in-bond assembly) plants pay 3.5 times the Mexican minimum wage.

The facts also show how protectionism hurts employment. The example of the US car industry has already been mentioned: trade barriers designed to protect US jobs by restricting imports from Japan ended up making cars more expensive in the US, so fewer cars were sold and jobs were lost.

In other words, an attempt to tackle a problem in the short term by restricting trade turned into a bigger problem in the longer term.

Even when a country has difficulty making adjustments, the alternative of protectionism would simply make matters worse.

8. The basic principles make the system economically more efficient, and they cut costs

Many of the benefits of the trading system are more difficult to summarize in numbers, but they are still important. They are the result of essential principles at the heart of the system, and they make life simpler for the enterprises directly involved in trade and for the producers of goods and services.

Trade allows a division of labour between countries. It allows resources to be used more appropriately and effectively for production. But the WTO’s trading system offers more than that. It helps to increase efficiency and to cut costs even more because of important principles enshrined in the system.

Imagine a situation where each country sets different rules and different customs duty rates for imports coming from different trading partners. Imagine that a company in one country wants to import raw materials or components – copper for wiring or printed circuit boards for electrical goods, for example – for its own production.

It would not be enough for this company to look at the prices offered by suppliers around the world. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from), and it would have to study each of the regulations that apply to products from each country. Buying some copper or circuit boards would become very complicated.

That, in simple terms, is one of the problems of discrimination.

Imagine now that the government announces it will charge the same duty rates on imports from all countries, and it will use the same regulations for all products, no matter where they come from, whether imported or locally produced. Life for the company would be much simpler. Sourcing components would become more efficient and would cost less.

Non-discrimination is just one of the key principles of the WTO’s trading system. Others include:

· Transparency (clear information about policies, rules and regulations);

· Increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s markets are legally binding);

· Simplification and standardization of customs procedure, removal of red tape, centralized databases of information, and other measures designed to simplify trade that come under the heading “trade facilitation”.

Together, they make trading simpler, cutting companies’ costs and increasing confidence in the future. That in turn also means more jobs and better goods and services for consumers.

9. The system shields governments from narrow interests

The GATT – WTO system which evolved in the second half of the 20th Century helps governments take a more balanced view of trade policy. Governments are better – placed to defend themselves against lobbying from narrow interest groups by focusing on trade – offs that are made in the interests of everyone in the economy

One of the lessons of the protectionism that dominated the early decades of the 20th Century was the damage that can be caused if narrow sectoral interests gain an unbalanced share of political influence. The result was increasingly restrictive policy which turned into a trade war that no one won and everyone lost.

Superficially, restricting imports looks like an effective way of supporting an economic sector. But it biases the economy against other sectors which shouldn’t be penalized – if you protect your clothing industry, everyone else has to pay for more expensive clothes, which puts pressure on wages in all sectors, for example.

Protectionism can also escalate as other countries retaliate by raising their own trade barriers. That’s exactly what happened in the 1920s and 30s with disastrous effects. Even the sectors demanding protection ended up losing.

Governments need to be armed against pressure from narrow interest groups, and the WTO system can help.

The GATT – WTO system covers a wide range of sectors. So, if during a GATT – WTO trade negotiation one pressure group lobbies its government to be considered as a special case in need of protection, the government can reject the protectionist pressure by arguing that it needs a broad-ranging agreement that will benefit all sectors of the economy. Governments do just that, regularly.

10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult to reverse. The rules also discourage a range of unwise policies. For businesses, that means greater certainty and clarity about trading conditions. For governments it can often mean good discipline.

The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise because of the damage it causes domestically and internationally, as we have already seen.

Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms of bad government.

One kind of trade barrier that the WTO’s rules try to tackle is the quota, for example restricting imports or exports to no more than a specific amount each year.

Because quotas limit supply, they artificially raise prices, creating abnormally large profits (economists talk about “quota rent”). That profit can be used to influence policies because more money is available for lobbying.

It can also provide opportunities for corruption, for example in the allocation of quotas among traders. There are plenty of cases where that has happened around the world.

In other words, quotas are a particularly bad way of restricting trade. Governments have agreed through the WTO’s rules that their use should be discouraged.

Nevertheless, quotas of various types remain in use in most countries, and governments argue strongly that they are needed. But they are controlled by WTO agreements and there are commitments to reduce or eliminate many of them, particularly in textiles.

Many other areas of the WTO’s agreements can also help reduce corruption and bad government.

Transparency (such as making available to the public all information on trade regulations), other aspects of “trade facilitation”, clearer criteria for regulations dealing with the safety and standards of products, and non-discrimination also help by reducing the scope for arbitrary decision-making and cheating.

Quite often, governments use the WTO as a welcome external constraint on their policies: “we can’t do this because it would violate the WTO agreements”.

Q. 5 a. Explain five-element product wave model. (7 marks) b. What do you mean by globalization? (3 marks)

The Five-Element Product Wave

The wave model employs design engineering, process engineering, product marketing, production, and end-of-life activities as elements. The first wave is associated with the "A" version of a product or service, and survives through the traditional PLC introduction and growth phases. A second wave begins with the "B" version, the markedly improved second model. It starts just before the traditional life cycle maturity stage and lives until sales decline to a point at which an EOL decision must be made.

Note that design engineering has a peak of activity level at each upgrade. Process engineering activity shadows that of design engineering, as system changes will be contemplated and made to facilitate the changes made in the product or service. Product marketing also has activity level spikes that closely match engineering design activity, lagged somewhat for product introduction. Production has one activity peak that results from demand management and production planning through master production scheduling.

Finally, the EOL curve peaks at each redesign. The last wave begins shortly before original production ceases and ends when the product is no longer manufactured or supported by the EOL Company or division. The EOL element requires that a decision be made about the preceding version at each major redesign: continue production, make a short-term run of spares, keep blueprints active so that parts can be made as ordered, enter into a manufacturing and support agreement with another entity, or discontinue production.

For the sake of parsimony, only a two-product model ("A" and "B" versions). In reality, there may be hundreds of significant redesigns. The wave effect comes from the fact that the process repeats for the successful firm, forming swells in design engineering, process engineering, product marketing, and manufacturing curves before the final crest at EOL activity.

The five-element product wave, or FPW, uses trigger points, rather than time, as the horizon over which the element curves vary. Changes in magnitude, represented by the vertical axis, result from differing activity levels within the five elements. Simple changes in levels of dollar or unit product sales, in and of themselves, do not necessarily determine the trigger points. Rather, the varying activity levels are a direct result of product introductions and redesigns that, from the outset, must take into account company strategy, core capabilities, and the state of the competitive environment. For example, a product with strong sales may be redesigned in a preemptive strike against competitors, further distancing that product from the competition, such as with Caterpillar’s innovative high-drive bulldozers.

That the five-element wave is grounded in reality becomes apparent when considering the recent research that suggests product introduction cycles are being compressed. Bayus (1994) claims that knowledge is being applied faster, resulting in increasing levels of new product introductions. Yet since product removals are not keeping pace with introductions, there are an increasing number of product variations on the market. Slater (1993) observes that product life cycles are growing shorter and shorter. Vesey (1992) reports that the strategy for the 1990s is speed to market and discusses the pressures the market is exerting to shorten product introduction lead times.

Regardless of whether life cycles are actually being compressed or knowledge is simply being applied faster, it is apparent that firms are increasing the speed with which they bring their products to market. The effect of this is a compression of the design engineering, process engineering, production, and product marketing elements of the wave model. (The EOL curve may remain unchanged because accelerated introductions do not necessarily affect EOL efforts.) The five-element wave clearly shows the inefficiency of traditional "over-the-wall" systems as speed to market increases. As the elements compress, more and more information is thrown over the wall. Recipients find themselves with less and less time to take action. Taken to the extreme, in-baskets, phone lines, conference rooms, desks, and floors are soon gridlocked and littered with unanswered correspondence and things to do. Forget quality; production itself grinds to a halt.

The solution is to maximize the advantage of the relationships within the five-element wave and work in concurrent teams, as illustrated in Figure 6. That way, responsibility is shared throughout the system. Members from each discipline optimize the system. The method tears down barriers between departments and speeds the introduction process, thus decreasing costs. The focal point becomes the customer, rather than the task. The system is totally interactive and bound together. Each element is connected to all of the others and is focused on the customer.

What is the recent experience with teams? There is evidence that using concurrent design teams speeds the product to market and provides substantial savings. Boeing expects that concurrent design will save some $4 billion in the development of its 777 airliner. Westinghouse recently suggested that concurrent engineering would eliminate 200 duplicate processes in a project that consisted of 600 using traditional over-the-wall approaches. Ford’s Team Taurus was able to cut a full year out of model turnaround. In addition, design changes required after initial production began were reduced by some 76 percent.

The strength of the five-element product wave is the fact that it illuminates critical decision points in the life of a product or service. The interrelationships of the elements clearly illustrate the benefit of working product introductions, design changes, and end-of-life decisions in teams. This is particularly true in today’s rapidly compressing environment of speeding products to market. Furthermore, the model is flexible and may be expanded or contracted to include those functional areas relevant to the production team. Thus, whether a given firm’s product is a service or a manufactured good, the five-element wave is a powerful tool that can be deployed to accelerate effective decision making in markets demanding ever-increasing levels of speed and agility.

Globalization

The term "globalization" has acquired considerable emotive force. Some view it as a process that is beneficial – a key to future world economic development – and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. This brief offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its potential and its risks.

Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward – oriented policies brought dynamism and greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago. And as living standards rose, it became possible to make progress on democracy and economic issues such as the environment and work standards.

MBA Semester 4MB0037 – International Business Management

Assignment Set – 2

Q.1 Evaluate the monetary system and currency markets in international business management. (10 marks)

The transition has yielded notable successes. Though the focus of this brief has been on economic developments, the first major achievement is the widespread, though far from universal, commitment to democracy and to the establishment of a market-based economy. The transition to a market economy has been associated with increased political freedom in most countries. All but six of the countries are classified as "free" or "partly free" by the human rights organization Freedom House; periodic elections in these countries have served to give citizens a voice in the transition process. Politicians advocating a retreat from the path to a market economy have never captured power, though unreformed Communist parties have on

occasion captured as much as a third of the popular vote. It appears, therefore, that despite the economic hardships imposed by the transition, citizens have viewed turning back the clock as a worse outcome.

Second, a commitment to macroeconomic stability appears to have taken hold, with inflation brought under control in most cases. An example of this is Russia’s determination to prevent an inflationary spiral in the aftermath of the ruble’s devaluation in 1998.

Third, many of the basic structural underpinnings of market economies have been put in place in most countries, at least in a de jure sense. These include bankruptcy procedures, competition policy and anti-monopoly regulations, improvements in accounting standards, and legislation for regulating financial markets.

In the countries of Central Europe and the Baltics, commitment to macroeconomic stabilization came sooner and implementation of structural reforms was firmer. These countries have re-joined the ranks of middle – income countries and can claim to have transitioned. These countries now face the challenges posed by accession to the EU, and, more generally, by the process of catching-up with the richer nations.

Q.2 a. Mention the different entry strategies to enter international markets. (4 marks) b. How has E-commerce helped in international marketing? (6 marks)

Methods of entry

With rare exceptions, products just don’t emerge in foreign markets overnight – a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

· Exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country.

· Licensing and franchising are also low exposure methods of entry – you allow someone else to use your trademarks and accumulated expertise. Your partner puts up the money and assumes the risk. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisees often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country.

· Contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. This saves investment, but again you may be training a competitor.

· Direct entry strategies, where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market.

Electronic Commerce

Prospects for electronic commerce

Electronic commerce – usually in the form of sales, promotion, or support through the Internet – is a hot topic at the moment, evidenced by the high market capitalization of firms involved in this kind of business. Growth rates have been considerable over the last two years and are expected to persist, at least to some extent, for at least the next several years. Yet, it should be recognized that so far, sales over the Internet account for only a small portion of sales – especially outside the U.S.

Obstacles to diffusion

Obstacles to the diffusion of Internet trade come both from enduring sources and temporary roadblocks which may be overcome as consumer attitudes change and technology is improved. Currently, Internet connections are slower than desired so that downloading pictures and other information may take longer than consumers

are willing to wait. "Glitches" in online ordering systems may also frustrate consumers, who are unable to place their orders at a given time or have difficulty navigating through a malfunctioning site. The lack of non-English language sites in some areas may also be off-putting to consumers, and registering domain names in some countries is difficult. Further, shipping small packages across countries may be inefficient due to high local postage rates and inefficiencies in customs processing. Most of these obstacles may be overcome within next few years.

Other obstacles may, however, have considerably greater staying power. First, there are legal problems, as several different countries may seek to impose their jurisdiction on advertising and laws of product assortment and business practices. Further, the maintenance of databases, which are essential to delivering on the promises of e-commerce, may conflict with the privacy rules of some countries – this is currently a hot issue of contention between the United States and the European Union. Finally, there are issues of taxation and collection. While the Clinton Administration has sought to get the WTO to go along with a three year tax "moratorium" on Internet purchases much like the one observed in the U.S., strong opposition is expected. A great attraction of e-commerce in Europe is that people may order from other countries and thus evade local sales taxes, which can be prohibitive (e.g., 25% in Denmark and 16% in Germany). Some firms will ship to customers in neighbouring countries without collecting sales taxes or duties, with the responsibility of paying falling on the consumer. Although most consumers who order and do not arrange to pay for these taxes get away with it, fines for those caught through random checks can be severe.

Locus of the site

Some firms have chosen to maintain a global site, with reference only to local sales or support offices; others, in contrast, have unique sites for each country. In some cases, global sites will hyperlink surfers to a country or region relevant to the site. Note that some confusion exists since many sites outside the U.S. maintain the ".com" designation rather than their countries’ respective suffix (e.g., ".de" for Germany, ".se" for Sweden, and ".au" for Australia). Some firms have experienced problems getting their banks to accept credit card charges in more than one currency, and thus it may be difficult to indicate precise prices in more than one denomination (one site based in Britain offered its American customers to be as accurate as possible, based on current exchange rates, although the charge could be off "by a few pennies.")

Lifecycle stages across the World

It has been suggested that Europe runs some five years behind the U.S. in electronic commerce, but some sources dispute this, suggesting that lack of success among American retailers may have other origins, such as inadequate adaptation (for example, some British users are put off by American English). There are, however, some factors which cause most countries run behind. Even in Europe, Internet access penetration rates are lower than they are in the U.S., and the slower speed associated with downloading Asian characters is discouraging. In some countries, credit card penetration is lower, and even in European countries with high penetration rates, consumers are reluctant to use them. Further, the fact that consumers in most countries have to pay a per minute phone charge discourages the essential casual and relaxed browsing common in the U.S. so long as unlimited cable or hardwired access is not offered.

Q.3 a. Explain Bill of Lading and Letters of credit. (8 marks) b. What is UNCITRAL and what it does? (2 marks)

Bill of Lading

A Bill of Lading is a type of document that is used to acknowledge the receipt of a shipment of goods and is an essential document in transporting goods overland to the exporter’s international carrier. A through Bill of Lading involves the use of at least two different modes of transport from road, rail, air and sea. The term derives from the noun "bill", a schedule of costs for services supplied or to be supplied, and from the verb "to lade" which means to load a cargo onto a ship or other form of transport.

In addition to acknowledging the receipt of goods, a Bill of Lading indicates the particular vessel on which the goods have been placed, their intended destination, and the terms for transporting the shipment to its final destination. Inland, ocean, through, and airway bill are the names given to bills of lading.

Letter of Credit

A letter of credit is a document issued mostly by a financial institution which usually provides an irrevocable payment undertaking (it can also be revocable, confirmed, unconfirmed, transferable or others e.g. back to back: revolving but is most commonly irrevocable/confirmed) to a beneficiary against complying documents as stated in the credit. Letter of Credit is abbreviated as an LC or L/C, and often is referred to as a documentary credit, abbreviated as DC or D/C, documentary letter of credit, or simply as credit (as in the UCP 500 and

UCP 600). Once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to honour irrespective of any instructions from the applicant to the contrary. In other words, the obligation to honour (usually payment) is shifted from the applicant to the issuing bank or confirming bank, if any. Non-banks can also issue letters of credit however parties must balance potential risks.

Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade. There are basically two types: commercial and standby. The commercial letter of credit is the primary payment mechanism for a transaction, whereas the standby letter of credit is a secondary payment mechanism.

UNCITRAL

The United Nations Commission on International Trade Law (UNCITRAL) was established by the General Assembly in 1966 (Resolution 2205(XXI) of 17 December 1966). In establishing the Commission, the General Assembly recognized that disparities in national laws governing international trade created obstacles to the flow of trade, and it regarded the Commission as the vehicle by which the United Nations could play a more active role in reducing or removing these obstacles.

Mandate

The General Assembly gave the Commission the general mandate to further the progressive harmonization and unification of the law of international trade. The Commission has since come to be the core legal body of the United Nations system in the field of international trade law.

Composition

The Commission is composed of sixty member States elected by the General Assembly. Membership is structured so as to be representative of the world’s various geographic regions and its principal economic and legal systems. Members of the Commission are elected for terms of six years, the terms of half the members expiring every three years.

Q.4. Explain the importance of STP in international markets. (10 marks)

The importance of STP

Segmentation is the cornerstone of marketing – almost all marketing efforts in some way relate to decisions on who to serve or how to implement positioning through the different parts of the marketing mix. For example, one’s distribution strategy should consider where one’s target market is most likely to buy the product, and a promotional strategy should consider the target’s media habits and which kinds of messages will be most persuasive. Although it is often tempting, when observing large markets, to try to be "all things to all people," this is a dangerous strategy because the firm may lose its distinctive appeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be as similar as possible to each other on a relevant dimension (e.g., preference for quality vs. low price) and as different as possible from members of other segments. That is, members should respond in similar ways to various treatments (such as discounts or high service) so that common campaigns can be aimed at segment members, but in order to justify a different treatment of other segments, their members should have their own unique response behaviour.

Q. 5 a. Write a short note on branding and trademarks. (6 marks) b. What are the features of exchange and currency markets? (4 marks)

Branding is the application of marketing techniques to a specific product, product line, or brand. It seeks to increase a product's perceived value to the customer and thereby increase brand franchise and brand equity[1]. Marketers see a brand as an implied promise that the level of quality people have come to expect from a brand will continue with future purchases of the same product. This may increase sales by making a comparison with competing products more favorable. It may also enable the manufacturer to charge more for the product. The value of the brand is determined by the amount of profit it generates for the manufacturer. This can result from a combination of increased sales and increased price, and/or reduced COGS (cost of goods sold), and/or reduced or more efficient marketing investment. All of these enhancements may improve

the profitability of a brand, and thus, "Brand Managers" often carryline-management accountability for a brand's P&L (Profit and Loss) profitability, in contrast to marketing staff manager roles, which are allocated budgets from above, to manage and execute. In this regard, Brand Management is often viewed in organizations as a broader and more strategic role than Marketing alone.

A trademark or trade mark or trade-mark [1] is a distinctive sign or indicator used by an individual,business

organization, or other legal entity to identify that the products or services to consumers with which the

trademark appears originate from a unique source, and to distinguish its products or services from those of

other entities.

A trademark is designated by the following symbols:

™ (for an unregistered trade mark, that is, a mark used to promote or brand goods)

℠ (for an unregistered service mark, that is, a mark used to promote or brand services)

® (for a registered trademark)

A trademark is typically a name, word, phrase, logo, symbol, design, image, or a combination of these

elements.[2] There is also a range of non-conventional trademarks comprising marks which do not fall into

these standard categories, such as those based on color, smell, or sound.

The owner of a registered trademark may commence legal proceedings for trademark infringement to prevent

unauthorized use of that trademark. However, registration is not required. The owner of a common law

trademark may also file suit, but an unregistered mark may be protectable only within the geographical area

within which it has been used or in geographical areas into which it may be reasonably expected to expand.

The term trademark is also used informally to refer to any distinguishing attribute by which an individual is

readily identified, such as the well known characteristics of celebrities. When a trademark is used in relation to

services rather than products, it may sometimes be called a service mark, particularly in the United States.

Exchange Rate Markets and Currency Markets

The exchange rate regimes adopted by countries in today’s international monetary and financial system, and the system itself, are profoundly different from those envisaged at the 1944 meeting at Bretton Woods establishing the IMF and the World Bank. In the Bretton Woods system:

· exchange rates were fixed but adjustable. This system aimed both to avoid the undue volatility thought to characterize floating exchange rates and to prevent competitive depreciations, while permitting enough flexibility to adjust to fundamental disequilibrium under international supervision;

· private capital flows were expected to play only a limited role in financing payments imbalances, and widespread use of controls would prevent instability in such flows;

· temporary official financing of payments imbalances, mainly through the IMF, would smooth the adjustment process and avoid unduly sharp correction of current account imbalances, with their repercussions on trade flows, output, and employment.

In the current system, exchange rates among the major currencies (principally the U.S. dollar, the euro, and Japanese yen) fluctuate in response to market forces, with short-run volatility and occasional large medium-run swings (Figure 1). Some medium-sized industrial countries also have market – determined floating rate regimes, while others have adopted harder pegs, including some European countries outside the euro area. Developing and transition economies have a wide variety of exchange rate arrangements, with a tendency for many but by no means all countries to move toward increased exchange rate flexibility (Figure 2).

This variety of exchange rate regimes exists in an environment with the following characteristics:

· partly for efficiency reasons, and also because of the limited effectiveness of capital controls, industrial countries have generally abandoned such controls and emerging market economies have gradually moved away from them. The growth of international capital flows and globalization of financial markets has also been spurred by the revolution in telecommunications and information technology, which has dramatically lowered transaction costs in financial markets and further promoted the liberalization and deregulation of international financial transactions;

· international private capital flows finance substantial current account imbalances, but the changes in these flows appear also sometimes to be a cause of macroeconomic disturbances or an important channel through which they are transmitted to the international system;

· developing and transition countries have been increasingly drawn into the integrating world economy, in terms of both their trade in goods and services and of financial transactions.

Lessons from the recent crises in emerging markets are that for such countries with important linkages to global capital markets, the requirements for sustaining pegged exchange rate regimes have become more demanding as a result of the increased mobility of capital. Therefore, regimes that allow substantial exchange rate flexibility are probably desirable unless the exchange rate is firmly fixed through a currency board, unification with another currency, or the adoption of another currency as the domestic currency (dollarization).

Flexible exchange rates among the major industrial country currencies seem likely to remain a key feature of the system. The launch of the euro in January 1999 marked a new phase in the evolution of the system, but the European Central Bank has a clear mandate to focus monetary policy on the domestic objective of price stability rather than on the exchange rate. Many medium-sized industrial countries, and developing and transition economies, in an environment of increasing capital market integration, may also continue to maintain market-determined floating rates, although more countries could may adopt harder pegs over the longer term. Thus, prospects are that:

· exchange rates among the euro, the yen, and the dollar are likely to continue to exhibit volatility, and schemes to reduce volatility are neither likely to be adopted, nor to be desirable as they prevent monetary policy from being devoted consistently to domestic stabilization objectives;

· several of the transition countries of central and eastern Europe, especially those preparing for membership in the European Union, are likely to seek to establish over time the policy disciplines and institutional structures required to make possible the eventual adoption of the euro.

The approach taken by the IMF continues to be to advise member countries on the implications of adopting different exchange rate regimes, to consider the choice of regime to be a matter for each country to decide and to provide policy advice that is consistent with the maintenance of the chosen regime (Box 3).

Q. 6 Discuss the various International product and pricing decisions. (10 marks)

International Product Decisions

A product can be defined as a collection of physical, service and symbolic attributes which yield satisfaction or benefits to a user or buyer. A product is a combination of physical attributes say, size and shape; and subjective attributes say image or "quality". A customer purchases on both dimensions. As cited earlier, an avocado pear is similar the world over in terms of physical characteristics, but once the label CARMEL, for example, is put on it, the product’s physical properties are enhanced by the image CARMEL creates. In "post modernisation" it is increasingly important that the product fulfils the image which the producer is wishing to project. This may involve organizations producing symbolic offerings represented by meaning laden products that chase stimulation-loving consumers who seek experience – producing situations. So, for example, selling mineral water may not be enough. It may have to be "Antarctic" in source, and flavoured. This opens up a wealth of new marketing opportunities for producers.

A product’s physical properties are characterized the same the world over. They can be convenience or shopping goods or durables and non-durables; however, one can classify products according to their degree of potential for global marketing:

· local products – seen as only suitable in one single market.

· international products – seen as having extension potential into other markets.

· multinational products – products adapted to the perceived unique characteristics of national markets.

· global products – products designed to meet global segments.

Quality, method of operation or use and maintenance (if necessary) are catchwords in international marketing. A failure to maintain these will lead to consumer dissatisfaction. This is typified by agricultural machinery where the lack of spares and/or foreign exchange can lead to lengthy downtimes. It is becoming increasingly important to maintain quality products based on the ISO 9000 standard, as a prerequisite to export marketing.

Consumer beliefs or perceptions also affect the "world brand" concept. World brands are based on the same strategic principles, same positioning and same marketing mix but there may be changes in message or other image. World brands in agriculture are legion. In fertilizers, brands like Norsk Hydro are universal; in tractors, Massey Ferguson; in soups, Heinz; in tobacco, BAT; in chemicals, Bayer. These world brand names have been built up over the years with great investments in marketing and production. Few world brands, however, have originated from developing countries. This is hardly surprising given the lack of resources. In some markets product saturation has been reached, yet surprisingly the same product may not have reached saturation in other similar markets. Whilst France has long been saturated by avocadoes, the UK market is not yet, hence raising the opportunity to enter deeper into this market.

International Pricing Decisions

Recent developments in open-economy macroeconomics have progressed under the paradigm of nominal price rigidities, where monetary disturbances are the main source of fluctuations. Following developments in closed-economy models, new open-economy models have combined price rigidities and market imperfections in a fully micro founded inter-temporal general equilibrium setup. This framework has been used extensively to study the properties of the international transmission of shocks, as well as the welfare implications of alternative monetary and exchange rate policies.

Imperfect competition is a key feature of the new open-economy framework. Because agents have some degree of monopoly power instead of being price takers, this framework allows the explicit analysis of pricing decisions. The two polar cases for pricing decisions are producer-currency pricing and local-currency pricing. The first case is the traditional approach, which assumes that prices are preset in the currency of the seller. In this case, prices of imported goods change proportionally with unexpected changes in the nominal exchange rate, and the law of one price always holds.’ In contrast, under the assumption of local-currency pricing, prices are preset in the buyer’s currency. Here, unexpected movements in the nominal exchange rate do not affect the price of imported goods and lead to short-run deviations from the law of one price.

Empirical evidence using disaggregated data suggests that international markets for tradable goods remain highly segmented and that deviations in the law of one price are large, persistent, and highly correlated with movements in the nominal exchange rate, even for highly tradable goods. Moreover, there is strong evidence that the large and persistent movements that characterize the behaviour of real exchange rates at the aggregate level are largely accounted for by deviations in the law of one price for tradable goods.

The price-setting regime determines the currency of denomination of imported goods and the extent to which changes in exchange rates affect the relative price of imported to domestic goods and the international allocation of goods in the short run. That is, different pricing regimes imply different roles for the exchange rate in the international transmission of monetary disturbances. As we shall see, this assumption has very striking implications for several important questions, namely real exchange rate variability, the linkage between macroeconomic volatility and international trade, and the welfare effects of alternative exchange rate regimes, among others.

While generating deviations from the law of one price that are absent from models assuming producer-currency pricing, the assumption of local-currency pricing still leaves important features of the data unexplained. The key role of this assumption in the properties of open-economy models suggests that it is necessary to keep exploring the implications of alternative pricing structures in open-economy models.

MBA Semester 4MU0006 – Compensation Benefit

Assignment Set – 1

Q.1 Explain the objective of a sound compensation planning. [10 Marks]

Objectives of Compensation Planning

The most important objective of any pay system is fairness or equity. The term equity has three dimensions:

a) Internal Equity: This ensures that more difficult jobs are paid more.

b) External Equity: This ensures that jobs are fairly compensated in comparison to similar jobs in the labour market.

c) Individual Equity: It ensures equal pay for equal work, i.e., each individual’s pay is fair in comparison to others doing the same/similar jobs.

In addition, there are other objectives as well. The ultimate goal of compensation administration (the process of managing a company’s compensation program) is to reward desired behaviours and encourage people to do well in their jobs. Some of the important objectives that are sought to be achieved through effective compensation management are listed below:

a) Attract Talent

Compensation needs to be high enough to attract talented people. Since many firms compete to hire the services of competent people, the salaries offered must be high enough to motivate them to apply.

b) Retain Talent

If compensation levels fall below the expectations of employees or are not competitive, employees may quit in frustration.

c) Ensure Equity

Pay should equal the worth of a job. Similar jobs should get similar pay. Likewise, more qualified people should get better wages.

d) New and Desired Behaviour

Pay should reward loyalty, commitment, experience, risk-taking, initiative and other desired behaviours. Where the company fails to reward such behaviours, employees may go in search of greener pastures outside.

e) Control costs

The cost of hiring people should not be too high. Effective compensation management ensures that workers are neither overpaid nor underpaid.

f) Comply with Legal Rules

Compensation programs must invariably satisfy governmental rules regarding minimum wages, bonus, allowances, benefits, etc.

g) Ease of Operation

The compensation management system should be easy to understand and operate. Then only will it promote understanding regarding pay-related matters between employees, unions and managers.

Q.2 Apex is an ITES service provider Company. It is startup (new) company, which is trying to woo talent from the market. Being a new company it might face difficulty in hiring highly talented candidates. As remuneration plays an important role, what will be the strategic incentives plans organization can offer to persuade talented employees besides providing good salary? [10 Marks]

Essentials of a Sound Incentive Plan

To be successful, a wage incentive plan must satisfy the following requirements:

(a) Proper Climate

In the absence of mutual trust and understanding between management and workers, a wage incentive system may be viewed as an attempt on the part of management to coerce for production. Therefore, management must develop sound industrial relations before introducing the plan. For this purpose, sound policies regarding recruitment, selection, placement, training, transfer, promotion, etc. are required.

(b) Workers’ Participation

A wage incentive plan should be installed in consul tation with workers and their union. Involvement of employees will ensure that they fully understand the objectives and mechanism of the plan.

(c) Scientific Standards

The standards of performance for payment of incentives should be established through scientific work study free from bias and favouritism.

(d) Guaranteed Minimum Wage

A minimum wage should be guaranteed to every worker irrespective of his performance. This is necessary to ensure a sense of security and confidence among workers.

(e) Simplicity

The incentive plan should be easy to understand and simple to operate so that a worker can calculate his own earnings. The linkage between pay and performance should be clear. Complicated plans and formulae create suspicion and distrust in the mind of workers.

(f) Equitable

The plan should provide equal opportunity to all workers to earn incentive pay. Otherwise, it will cause dissatisfaction and jealousy among workers who have no opportunity to earn more. Some benefit of increased productivity should be given to indirect workers so as to avoid any disparity. In other words, the plans should be comprehensive so as to cover all the employees.

(g) Economical

The plan should not be very costly in operation. Need for detailed records and complicated calculations increase costs. The potential benefits of the scheme should exceed its costs.

(h) Flexibility

There should be scope for making changes in the scheme to rectify errors and to take care of changes in technology, market demand, etc. However frequent changes should be avoided as these create confusion and doubt among workers.

(i) Prompt Payment

The time gap between actual performance and incentive payment should be as small as possible. Once the job is completed, incentive should be paid as soon as possible.

(j) Adequate Incentive

Incentive payments under the scheme should be large enough to motivate the worker. For example, an incentive payment of Rs.100 to a worker getting Rs.1,000 per month is more meaningful than to a worker drawing a monthly salary of Rs.5.000.

(k) Ceilings on Earnings

A ceiling on the maximum incentive earnings should be laid down to prevent over-exertion and to ensure quality. Otherwise, the plan may become detrimental to the health and welfare of employees.

(l) Reasonable Standards

The standards should be of average difficulty, neither too low nor too high. Moreover, standards should be guaranteed against unnecessary changes. Working conditions and work methods should be standardized so that standards are just and fair to all. Management must avoid all bottlenecks in workflow.

(m) Grievance Machinery

Suitable machinery for quick and fair redressal of grievances arising from the implementation of the scheme should be installed.

(n) Appraisal System

A clear system for inspecting, counting and recording output of each worker should be developed. The results should be made known to the workers.

(o) Follow-up

The operation and effectiveness of the scheme should be reviewed periodically. Any deficiency in the scheme or in its administration should be properly rectified.

Q.3 Explain the steps involved in designing a Remuneration Plan. [10 Marks]

Steps Involved in Designing a Remuneration Plan

Any remuneration plan must be understandable, workable and acceptable. The remuneration scheme must have two components—a base rate and the scope for increasing the base rate. The remuneration plan must be determined keeping in mind the requisites and the components. The following steps must be followed in designing a remuneration plan:

Fig. 2.1: Remuneration Model

a) Job Analysis

This involves collecting and evaluating relevant information about jobs. Any data collected should clarify the nature of the work being performed (principal or essential tasks, duties and responsibilities), the level of the work being performed, the extent and types of knowledge, skill, mental and physical effort and requirements and responsibility required for the work being performed. There are five primary sources of data for collection of job information: questionnaires, interviews, logs or diaries, direct observation and work plans. All of these methods have advantages and disadvantages and the organization must choose the method that will provide comprehensive data with administrative efficiency and cost-effectiveness.

b) Job Documentation

There needs to be a formalized way to document job content. In most organizations, a job description is the means used to accomplish this. Job documentation is used to evaluate job content, provide objective criteria for making pay comparisons, ensure that jobs are classified according to content as opposed to individual personalities, effectively communicate the job duties to both supervisors and employees, and help the

organization defend itself against charges of discrimination. Who to write job descriptions? That will depend on the resources available to the organization, but line management should always review them.

c) Development of a Job Worth Hierarchy

A job worth hierarchy is the result of job evaluation, the overall process of comparing jobs. There are six major methods of comparing jobs in order to develop the job worth hierarchy. The first three methods are ‘whole-job’ evaluations and are non-quantitative in nature. These include ranking, classification and slotting. The second three are ‘factor’ evaluation and are quantitative in nature. These include point factor, factor comparison, and scored questionnaires.

d) Pay Surveys

Job hierarchy being established, the next step is to establish pay differentials. Before fixing wage and salary differentials, prevailing wage and salary rates in the labour market need to be ascertained. Hence pay surveys are relevant. Wage and salary surveys ensure external equity. A wage and salary survey provides information as to what other organisations that compete for employees are paying. The survey could cover all the jobs within an organisation or limited to benchmark jobs, jobs that are used to anchor the company’s pay scale and around which other jobs are slotted based on their relative worth to the firm. The benchmark jobs have the following basic characteristics.

i) Many workers in other companies have these jobs.

ii) They will not be changing in the immediate future in terms of tasks, responsibilities, etc.

iii) They represent the full range in terms of salary such that some are among the lowest paid in the group of jobs, others are in the middle range and some are at the high end of the pay scale.

Formal and informal surveys could be undertaken to collect data on benefits like insurance, medical leave, vacation pay, etc., and offer a basis on which to take decisions regarding employee benefits. Published sources also provide valuable information regarding industry-wise trends in salary structures in and around the country. The published sources in India include:

i) Reports published by the Ministry of Labour

ii) Pay Commission reports

iii) Reports of Wage Bonds appointed by Government

iv) Reports of employees and employers’ organisations

v) Trade journals of specific industry groups, etc.

One of the major problems with these sources is the comparability of jobs in the survey to jobs in the organisation. To overcome the limitations of published surveys, one must resort to conducting one’s own surveys of important jobs. The following survey methods are generally used to collect relevant wage-related information:

i) Key Job Matching: Under this method, similar key jobs are identified between the organization and the relevant wage particulars about those comparable jobs are collected.

ii) Key Class Matching: Similar classes of jobs are identified and the necessary data about those classes are collected.

iii) Occupational Method: Certain basic occupational groups like clerks, officers, managers are identified and then the necessary data is collected.

iv) Job Evaluation Method: All the parties participating in the survey method use the same method and same mechanism for evaluating similar jobs.

v) Broad Classification Method: Under this method, broad groups of relatively homogeneous job i.e., by industry, by profession or by geographical areas are grouped and the relevant information about these jobs is collected.

e) Pricing Jobs

Establishment of Pay Ranges and/or Rates:

In order to actually establish a pay structure, an organization needs to set rates of pay for the jobs in the job hierarchy. Before doing this, an organization needs to ask, and answer, the following questions:

· How should the organization’s pay level relate to the external market? Should the organization be a pay leader, match the market or pay less than market?

· What is the organization willing to pay for? Job content, seniority, performance, skills, cost of labor, or some combination of all of these?

· How does the organization pay its employees? Based on a single rate structure (all employees in the same job receive the same pay), based on seniority, based on merit, based on productivity (piece work), based on new skills (skill-based pay), or based on some combination of these factors?

· Are short term or long term incentives provided?

· What steps does the organization need to take to ensure that pay is administered in a manner free of bias and discrimination?

If an organization decides to use pay ranges (or grades), it will have to determine how many ranges to have. This will depend on the number of different levels of relative job value that are recognized by the organization and the difference in pay between the highest and lowest paid jobs in the pay structure. The focal point of a pay range is the mid-point as this is generally the ‘going’ rate for jobs assigned to that range. From the mid-point, an organization can determine the range minimum and maximum. The range minimum is the usually the lowest pay rate for any job in that range and is usually the pay rate given to people hired in that range who meet minimal qualifications only. Occasionally, an organization will pay a ‘training’ rate that is below that minimum. The maximum of a range is the highest rate an employer is willing to pay for jobs in that pay range. Other important range issues include the range width and the degree of overlap between ranges.

The end result of all of the above is a pay structure that should accomplish the organization’s objectives with regard to a pay program, and should reflect the organization’s philosophy on how it wishes to relate its pay program to the market. Also, this pay structure should demonstrate the internal job values of positions, and how the organization wishes to mix base pay, benefits and incentives.

MBA Semester 4MU0006 – Compensation Benefit

Assignment Set – 2

Q.1) Fringe benefits are the important components of remuneration, though most of the organizations face confusion when it comes to administering fringe benefits program. Design the steps needed to administer Fringe Benefits to avoid problem in administering indirect remuneration plan. [10 Marks]

Steps in Administering Fringe Benefits

These problems can be avoided if the following lines are taken while administering indirect remuneration. The steps are:

Fig. 5.1: Flow Chart for Fringe Benefit Assessment Process

1. Benefit Objectives

It is essential for the management to establish objectives for its fringe benefit program. In establishing objec tives, the management must consider several factors like employee preference for benefits, attendance, length of service, performance, etc. The benefits accomplish four objectives:

a) Fostering external competitiveness.

b) Increasing cost effectiveness.

c) Meeting individual employee’s needs and preferences.

d) Complying with legal compulsions.

Whatever the objectives, they must reflect the organisation’s ability to pay.

2. Assessing Environment

External as well as internal factors influence a company’s indirect remuneration programs. The external factors are aspects such as government policies and regulations, unions and economic factors. The major government policies, which influence employee benefits and services, are wage regulations, tax policies, and specific benefit laws. In addition to government policies, unions are a dominant force to improve benefits and services. When labour unions and the management sit for a wage negotiation, benefits and services figure prominently in their discussion and the settlement reached invariably covers indirect remuneration to the advantage of the employees. Economic factors influence benefit decisions in conflicting ways. Struggling to achieve competitive prices for their products and services, managers look to reduce, or at least curtail, increases in labour costs. As indirect remuneration constitutes a major chunk of labour costs, benefits and services receive top priority in the cost-reduction drive. On the other hand, competition in the labour market to attract and retain production employees creates pressure to match the benefits offered by others.

Organisational strategies and objectives, employee preferences and demographics constitute the internal environment of employee benefits and services. The preferences and demographics of a particular employee in an organisation also affect indirect remuneration. Most employee benefits are tax-free, and hence are likely to appeal to employees with higher income. A vast majority of workers may not be attracted by such tax-free benefits. For them, fewer tax advantages exist, or these employees may have more immediate needs, which can be met only by cash benefits. Similarly, employees having college-going children or marriageable daughters have different benefit preferences than those who are newly hired with working spouses and children who have not reached the school-going age.

3. Competitiveness

Generally organisations offer benefits to match or outstrip those offered by competitors. These are assessed through market surveys conducted by professional associations and consultants. These surveys provide data on the various benefits offered, their coverage, eligibility and costs. The data allows employers to assess the competitiveness of their benefits and costs, with those offered by others.

4. Communicating the Benefits

Fringe benefit program must be communicated to employees through booklets, brochures, slide presentations, and regular employee meetings. An effective technique is to use employee calendars, which communicate the total remuneration components. Each month of the calendar shows a company employee receiving a benefit. Communication helps remove ignorance of employees about indirect remuneration. Further, employers might be able to increase the productivity and the advantages of good employee benefits by making employees aware of what the company does for them that does not appear on their pay slips.

5. Evaluation and Control

One way of assessing the usefulness of fringes is to ascertain how far the advantages claimed in favour of indirect monetary schemes have really benefited the employees. The aspects that need to be looked into are:

a) Have the earnings of employees improved?

b) Have the benefits been able to attract and retain competent people?

c) Has the morale of employees gone up?

d) Have industrial relations improved?

The answers to these and other related questions help assess the effectiveness of fringe benefits and also to redefine benefit objectives. Effect on costs of fringe benefits is a reliable test of their effectiveness. Employee benefit costs can be computed on the following lines:

a) Total cost of benefits annually for all employees

b) Cost per employee per year

c) Percentage to annual payroll

d) Cost per employee per hour

Q.2) Explain the different types of incentive plan offered by organisations. [10 Marks]

Types of Incentive Plans

Individual incentive plans are the most widely used ‘pay for performance’ plans in industry. These pay plans attempt to relate individual effort to pay. Popular approaches are as follows:

Time-based Individual Incentive Schemes

(a) Hasley or Wier Plan

This plan, devised by F. A. Halsey (an American engineer) recognises individual efficiency and pays bonus on the basis of time saved. The main features of this plan are:

i) Standard time is fixed for each job or operation.

ii) Time rate is guaranteed and the worker receives the guaranteed wages irrespective of whether he completes the work in the time allowed or takes more time to do the same.

iii) If the job is completed in less than the standard time, the worker is paid a bonus of 50% (33 1/3 per cent under Halsey-Weir Plan) of time saved at time rate in addition to his normal time wages.

Total Earnings = Time taken x Hourly Rate plus Bonus

(Bonus = 50% of time saved)

(b) The Rowan Plan

This plan was introduced by D. Rowan in 1901. As in Hasley Plan, the bonus is paid on the basis of time saved. But unlike a fixed percentage in the case of Halsey plan, it takes into account a proportion as follows:

 

(c) Emerson Efficiency Plan

This plan was developed by Harrington Emerson. Under this plan, standard time for the job is determined scientifically and a minimum time wage is guaranteed to all workers. Bonus is given at an increasing

percentage beyond the prescribed level of efficiency (usually 66.67 per cent). Efficiency is measured by comparing the actual time taken with the standard time.

Illustration:

Standard Time (S) = 10 hrs.

Time Taken (T) = 8 hrs.

Time Wage (R) – Rs.20 per hr.

Bonus = 10% up to 75% efficiency

= 20% for 75%-100%

= 30% beyond 100%

Total Wages = (T x R) + (Percentage of bonus x T x R)

In this case, the efficiency level is =   x 100 = 125% and, therefore, bonus at 30% is payable.

Total Wages = 8 x 20 +   (8 x 20) = 160 + 48 = Rs.208Worker A: Time taken 16 hrs, Bonus = NIL

Worker B: Time taken 14 hrs, Bonus =   x 14 x 20

Worker C: Time taken 10 hrs, Bonus =   x 10 x 20

Worker D: Time taken 8 hrs, Bonus =   x 8 x 20

(d) Bedeaux Point Plan

This plan was developed by Charles E. Bedeaux in 1911. Under it, standard time for the job is set scientifically and it is expressed in terms of ‘B’. For instance, a standard time of 240 B means the job should be completed within 240 minutes. In determining the ‘B’s, the time of operation and the rest time both are taken into account. Minimum time wage is guaranteed to all workers. The workers who complete the job within or more than the standard time are paid at the normal time rate. Those who complete the job in less than the standard time are paid bonus for the time saved. Generally, 75% of the wages for the time saved are paid as bonus to the worker and 25% of the foreman:

Total Wages = S x R + 75% of R (S – T)

Illustration:

Standard Time (S) = 240 Bs (4 hours)

Actual Time taken(T) = 180 Bs (3 hours)

Rate of Wages(R) = Rs. 0.50 per B

Total Wages = 240 x 0.50 +   x 0.50(240-180)

= 120 + = Rs. 142.50

Output-based Individual Incentive Schemes

(a) Taylor’s Differential Piece Rate System

F. W. Taylor, the Father of Scientific Management, originated this system. The main features of this plan are:

i) There shall be two-piece work rates, one is lower and the other is higher.

ii) The standard of efficiency is determined either in terms of time or output based on time and motion study.

iii) If a worker finishes work within standard time (or produces more than standard output within time) he will be given high piece rate.

iv) This system penalises the slow worker by paying low rate because of low production, rewards an efficient worker by giving him high rate because of higher production. Indirectly, this system gives no place to inefficient work. In other words, if the output of a worker is less than the standard output, he is paid a low rate and vice versa.

(b) Merrick’s Differential Piece Rate System

In Taylor’s Method, the effect on the wages is quite severe in the marginal cases. To remove this defect, Merrick came out with a Multiple Piece Rate System. There are three-piece rates under this scheme instead of two, and workers producing below the standard output are not penalised by the low piece rate. Since the earnings increase with increased efficiency, performance above the standard will be rewarded by more than one higher differential piece rate. The basic features of this scheme are:

i) Up to 83% of the standard output workers are paid at the ordinary piece rate.

ii) 83% to 100% at 110% of the ordinary piece rate.

iii) Above 100% at 120% of the ordinary piece rate.

(c) Gantt Task and Bonus Plan

This plan combines time, piece and bonus systems. The main features of this plan are:

i) Day wages are guaranteed.

ii) Standard time for task is fixed and both time wages as well as a high rate per piece are determined.

iii) A worker who cannot finish the work within the standard time is paid on time basis.

iv) If a worker reaches the standard, he will be paid time wage plus a bonus at fixed percentage (20%) of normal time wage.

v) If the worker exceeds the standards, he is paid a higher piece rate.

Accelerated Premium Bonus Plan

This plan is also known as Sliding Scale Bonus Plan because the premium is paid at varying rates for increasing efficiency. In this plan, as efficiency of worker improves, his earnings would increase in greater proportion. This plan is most suitable for foremen and supervisors because it will stimulate them to get higher production from workers under their supervision but it is not advisable to use it for machine operators who may rush through work to earn more, disregarding quality of production.

There is no simple formula for this scheme. Therefore, each firm has to devise its own formula. However, by way of illustration, a graph of y=0.8x2 may be given as general picture of the scheme (where x is percentage efficiency 100-r- and y = wages).Thus,Percentage efficiency 100 110 130 150

X 1 1.1 1.3 1.5

X2

1 1.21 1.69 2.25

Y = 0.8x2

0.8 0.97 1.35 1.8

Table 4.1: Graph of y=0.8x2

Q.3) Write short notes on: [10 Marks] The Minimum Wages Act, 1948 Payment of Wages Act, 1936

The Minimum Wages Act, 1948· Object of the Act

To provide for fixing minimum rates of wages in certain employments.

Fixation of Minimum Rates of Wages:

· The appropriate government to fix minimum rates of wages. The employees employed in para 1 or B of Schedule either at 2 or either part of notification u/s 27.

· To make review at such intervals not exceeding five years the minimum rates and revise the minimum rates.

Government can also Fix Minimum Wages for:

· Time work

· Piecework at piece rate.

· Piecework for the purpose of securing to such employees on a timework basis.

· Overtime work done by employees for piece work or time rate workers.

Sec. 3

Minimum Rates of Wages

Such as basic rates of wages, etc. Variable DA and Value of other concessions, etc.

Sec. 4

Procedure for Fixing and Revising Minimum Rates of Wages

Appointing Committee, issuing Notification, etc.

Sec. 5

Overtime

· To be fixed by the hour, by the day or by such a longer wage-period works on any day in excess of the number of hours constituting normal working day.

· Payment for every hour or for part of an hour so worked in excess at the overtime rate double of the ordinary rate of (1½ times or for agriculture labour).

Sec. 5

Composition of Committee

Representation of employer and employee in schedule. Employer in equal number and independent persons not exceeding 1/3rd or its total number. One such person to be appointed by the Chairman.

Sec. 9

Payment of Minimum Rates of Wages

Employer to pay to every employee engaged in schedule employment at a rate not less than minimum rate of wages as fixed by Notification by not making deduction other than prescribed.

Sec. 12

Fixing Hours for Normal Working

· Shall constitute a normal working day inclusive of one or more specified intervals.

· To provide for a day of rest in every period of seven days with remuneration.

· To provide for payment for work on a day of rest at a rate not less than the overtime rate. Sec. 13

· Wages of workers who work for less than normal working days same as otherwise hereinafter provided, be entitled to receive wages in respect of work done by him on that day as if he had worked for a full normal working day.

Sec. 15

Wages for Two Class of WorkWhere an employee does two or more classes of work to each of which a different minimum rate of wages is applicable, wages at not less than the minimum rate in respect of each such class.

Sec. 16

Minimum Time Rate Wages for Piece WorkNot less than minimum rates wages as fixed.

Sec. 17

Claims by Employees· To be filed by before authority constituted under the Act within 6 months.

· Compensation up to 10 times on under-payment or non-payment of wages.

Sec. 16

Maintenance of Registers and Records· Register of Fines – Form I Rule 21(4).

· Annual Returns – Form III Rule 21 (4-A).

· Register for Overtime – Form IV Rule 25.

· Register of Wages–Form X, Wages slip–Form XI, Muster Roll–Form V Rule 26.

· Representation of Register – for three years Rule 26-A.

Sec. 18

Penalties

PENALTIES Offence Punishment

Sec. 20For paying less than minimum rates of wages.

Imprisonment up to 6 months or with fine up to Rs.500/- .

For contravention of any provisions pertaining to fixing hours for normal working day etc.

Imprisonment up to 6 months or with fine up to Rs.500/-.

Table 3.3: Penalties for Offence

3.6.2 Payment of Wages Act, 1936Applicability of Act· Factory/ industrial establishment

· Tramway service or motor transport service engaged in carrying passengers or good or both by road for hire or reward

· Air transport service, Dock, Wharf or Jetty

· Inland vessel, mechanically propelled

· Mine, quarry or oil-field Plantation

· Workshops or other similar establishments

Object of the Act

To regulate the payment of wages of certain classes of employed persons.

Coverage of Employees

Drawing average wage up to Rs. 6500 p.m. as amended w.e.f. 6.9.05.

Time of Payment of Wages

The wages of every person employed be paid. When less than 1000 persons are employed, wages shall be paid before the expiry of the 7th day of the following month. When more than 1000 workers, before the expiry of the 10th day of the following month.

Sec. 5

Wages to be Paid in Current Coins or Currency Notes

· All wages shall be paid in current coins or currency notes or in both.

· After obtaining the authorization, either by cheque or by crediting the wages to employee’s bank account.

Sec. 6

Deduction made from Wages

Deductions such as, fine, deduction for amenities and services supplied by the employer, advances paid, over payment of wages, loan, granted for house-building or other purposes, income tax payable, in pursuance of the order of the Court, PF contributions, co-operative societies, premium for Life Insurance, contribution to any fund constituted by employer or a trade union, recovery of losses, ESI contributions etc.

Sec. 7

Fines as Prescribed

· Not to be imposed unless the employer is given an opportunity to show cause.

· To be recorded in the register.

Sec. 8

Deduction for Absence from Duties for Unauthorised Absence

· Absence for whole or any part of the day.

· If ten or more persons remain absent without reasonable cause, deduction of wages up to 8 days.

Sec. 9

Deduction for Damage or Loss

For default or negligence of an employee resulting in loss, Show Cause notice has to be given to the employee.

Sec. 10

Deductions for Service Rendered

When accommodation amenity or service has been accepted by the employee.

Sec. 11

Penalties

On contravention of S.5 (except sub-sec.4), S.7, S.8 (except Ss.8), S.9, S.10

(except Ss.2) and Secs.11 to 13.

Fine not less than Rs.1000, which may extend up to Rs.5000. On subsequent conviction, fine not less than Rs.5000, may extend up to Rs.10,000. On contravention S.4, S.5 (4), S6, S.8 (8), S.10 (2) or S.25 fine not less than Rs.1000. – May extend up to Rs.5000.

· For failing to maintain registers or records; or

· Willfully refusing or without lawful excuse neglecting to furnish information or return; or

· Willfully furnishing or causing to be furnished any information or return which he knows to be false, or

· Refusing to answer or willfully giving a false answer to any question necessary for obtaining any information required to

· Fine which shall not be less than Rs.1000 but may extend to Rs.5000 – On record conviction fine not less than Rs.5000, may extend to Rs.10, 000.

· For second or subsequent conviction, fine not less than Rs.5000 but may extend to Rs.10, 000.

be furnished under this Act.

· Willfully obstructing an Inspector in the discharge of his duties under this Act; or

· Refusing or willfully neglecting to afford an Inspector any reasonable facility for making any entry, inspection etc.

· Willfully refusing to produce on the demand of an inspector any register or other document kept in pursuance of this Act; or preventing any person for appearance etc.

Fine not less than Rs.1000 extendable

up to Rs.5000 – On subsequent conviction fine not less than Rs.5000 – may extent to Rs.10,000.

· On conviction for any offence and again guilty of contravention of same provision.

· Failing or neglecting to pay wages to any employee.

· Imprisonment not less than one month extendable up to six months and fine not less than Rs.2000 extendable up to Rs.15000.

· Additional fine up to Rs.100 for each day.

MBA Semester 4MU0007 – Performance Management & Appraisal

Assignment Set – 1

Q.1 Define Performance Management? Explain the principles of developing a performance management plan. [10 Marks]

Performance Management Basics

Performance management is an ongoing, continuous process of communicating and clarifying job responsibilities, priorities and performance expectations in order to ensure mutual understanding between supervisor and employee. It is a philosophy which values and encourages employee development through a style of management which provides frequent feedback and fosters teamwork. It emphasizes communication and focuses on adding value to the organization by promoting improved job performance and encouraging skill development. Performance Management involves clarifying the job duties, defining performance standards, and documenting, evaluating and discussing performance with each employee.

The objectives of Performance Management are:

· Increase two-way communication between supervisors and employees

· Clarify mission, goals, responsibilities, priorities and expectations

· Identify and resolve performance problems

· Recognize quality performance

· Provide a basis for administrative decisions such as promotions, succession and strategic planning, and pay for performance.

Principles of developing a performance management plan

Development of a performance management plan should be consistent with the following principles:

· Performance Management is considered a process, not an event. It follows good management practice in which continual coaching, feedback and communication are integral to success.

· The Performance Management Plan is primarily a communication tool to ensure mutual understanding of work responsibilities, priorities and performance expectations.

· Elements for discussion and evaluation should be job specific – not generalized personality traits. The major duties and responsibilities of the specific job should be defined and communicated as the first step in the process.   

· Performance standards for each major duty/ responsibility should be defined and communicated.   

· Employee involvement is encouraged in identifying major duties and defining performance standards.

· Professional development should be an important component of the plan.

· The formal evaluation period should be long enough to allow for full performance and to establish a history such that evaluations are fair and meaningful. One year is a common evaluation period. 

· Documentation of performance will occur as often as needed to record the continuum of dialogue between supervisor and employee.  

· If formal ratings are included, they should reflect the incumbent’s actual performance in relation to the performance standard for that major duty.

· The supervisor should be evaluated on the successful administration of the plan and ongoing performance management responsibilities.

· Training for supervisors and employees is encouraged. 

· The Performance Management Plan should be consistent with federal and state laws which address non-discrimination.

Q.2 Let, Ryan and Grossman suggested four key capacities for organizational effectiveness.-Elucidate. [10 Marks]

Suggested Capacities for Organizational Effectiveness

Letts, Ryan and Grossman (1998) suggest four key capacities for organizational effectiveness. These capacities were suggested for nonprofit organizations. However, they also apply to organizations in general and, thus; their descriptions are modified in the following paragraphs to apply to organizations in general.

1. Adaptive capacity

It is the ability of an organization to maintain focus on the external environment of the organization, particularly on “performing” (meeting the needs of customers), while continually adjusting and aligning itself to respond to those needs and influences. Adaptive capacity is cultivated through attention to assessments, collaborating and networking, assessments and planning.

2. Leadership capacity

It is the ability to set direction for the organization and its resources and also guide activities to follow that direction. Leadership capacity is cultivated through attention to vision, establishing goals, directing, motivating, making decisions and solving problems.

3. Management capacity

It is the ability to ensure effective and efficient use of the resources in the organization. Management capacity is accomplished through careful development and coordination of resources, including people (their time and expertise), money and facilities.

4. Technical capacity

It is the ability to design and operate products and services to effectively and efficiently deliver services to customers. The nature of that technical capacity depends on the particular type of products and services provided by the organization. In addition, a fifth key capacity has been mentioned.

5. Generative capacity

It is the ability of the organization to positively change its external environment. This capacity is exercised by engaging in activities to inform, educate and persuade policy makers, community leaders and other stakeholders.

While working to improve the effectiveness of organizations, consultants often refer to various performance standards as conveyed in “best practices” and “standards of excellence.” The performance standards correspond to the levels of quality in certain organizations that are widely viewed by others as being high performing organizations. Those views usually reflect conventional wisdom, but not necessarily findings from research. Consultants often use the standards to assess the quality of practices in their clients’ organization and then decide on what must be done to improve quality.

Although the practices and standards can be somewhat useful in getting some quick perspective on the quality of a particular function, you need to be careful about how you choose them and about how you draw conclusions from comparisons. The best use of best practices for an organization depends on a variety of factors, including the culture of the organization, nature of the products and services that the organization provides, expectations of major stakeholders, and effects of change in the environments of the organization. The open systems concept of equifinality suggests there is no one right way, or best practice, for leading, managing or guiding organizations and change.

If you are working in a highly collaborative approach with your clients, you are much more likely to work toward best practices in a manner that aligns those best practices with the nature and needs of your client’s organization.

Q.3 Explain the process of performance management [10 Marks]

Process of Performance Management

Performance management is the systematic process by which an agency involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of agency mission and goals.

Managing Performance Effectively: In effective organizations, managers and employees have been practicing good performance management naturally all their lives, executing each key component process well. Goals are set and work is planned routinely. Progress towards these goals is measured and employees get feedback. High standards are set, but care is also taken to develop the skills needed to reach them. Formal and informal rewards are used to recognize the behavior and results that accomplish the mission. All five component processes working together and supporting each other achieve natural, effective performance management.

3.2.1 Planning

In an effective organization, work is planned out in advance. Planning refers to setting performance expectations and goals for groups and individuals to channelize their efforts toward achieving organizational objectives. Getting employees involved in the planning process will help them understand the goals of the organization, what needs to be done, why it needs to be done, and how well it should be done.

The regulatory requirements for planning employees’ performance include establishing the elements and standards of their performance appraisal plans. Performance elements and standards should be measurable, understandable, verifiable, equitable, and achievable. Through critical elements, employees are held accountable as individuals for work assignments or responsibilities. Employee performance plans should be flexible so that they can be adjusted for changing program objectives and work requirements. When used effectively, these plans can be beneficial working documents that are discussed often, and not merely paperwork that is filed in a drawer and seen only when ratings of record are required.

3.2.2 Monitoring

In an effective organization, assignments and projects are monitored continually. Monitoring well means consistently measuring performance and providing ongoing feedback to employees and work groups on their progress toward reaching their goals.

Regulatory requirements for monitoring performance include conducting progress reviews with employees where their performance is compared against their elements and standards. Ongoing monitoring provides the opportunity to check how well employees are meeting predetermined standards and to make changes to unrealistic or problematic standards. And by monitoring continually, unacceptable performance can be identified at any time during the appraisal period and assistance provided to address such performance rather than wait until the end of the period when summary rating levels are assigned.

3.2.3 Developing

In an effective organization, employee developmental needs are evaluated and addressed. Developing in this instance means increasing the capacity to perform through training, giving assignments that introduce new skills or higher levels of responsibility, improving work processes, or other methods. Providing employees with training and developmental opportunities encourages good performance, strengthens job-related skills and competencies, and helps employees keep up with changes in the workplace, such as the introduction of new technology.

Carrying out the processes of performance management provides an excellent opportunity to identify developmental needs. During planning and monitoring of work, deficiencies in performance become evident and can be addressed. Areas for improving good performance also stand out, and action can be taken to help successful employees improve even further.

3.2.4 Rating

From time to time, organizations find it useful to summarize employee performance. This can be helpful for looking at and comparing performance over time or among various employees. Organizations need to know who their best performers are.

Within the context of formal performance appraisal requirements, rating means evaluating employee or group performance against the elements and standards in an employee’s performance plan and assigning a summary rating of record. The rating of record is assigned according to procedures included in the organization’s appraisal program. It is based on work performed during an entire appraisal period. The rating of record has a bearing on various other personnel actions, such as granting within-grade pay increases and determining additional retention service credit in a reduction in force.

Note: Although group performance may have an impact on an employee’s summary rating, a rating of record is assigned only to an individual, not to a group.

3.2.5 Rewarding

In an effective organization, rewards are used well. Rewarding means recognizing employees, individually and as members of groups, for their performance and acknowledging their contributions to the agency’s mission. A basic principle of effective management is that all behavior is controlled by its consequences. Those consequences can and should be both formal and informal and both positive and negative.

Good performance is recognized without waiting for nominations for formal awards to be solicited. Recognition is an ongoing, natural part of day-to-day experience. A lot of the actions that reward good performance – like saying "Thank you" – don’t require a specific regulatory authority. Nonetheless, awards regulations provide a broad range of forms that more formal rewards can take, such as cash, time off, and many non-monetary items. The regulations also cover a variety of contributions that can be rewarded, from suggestions to group accomplishments.

MBA Semester 4MU0007 – Performance Management & Appraisal

Assignment Set – 2

Q.1 Explain the role of ethics in performance appraisal. [10 Marks]

To abandon or abuse the performance appraisal process is a breach of business ethics. While some managers are skillful and genuine in reviewing an individual’s performance, that does not appear to be typical. The ethical ramifications of performance review have caused managers and employees at all levels to become frustrated, cynical, and withdrawn. Many managers talk about ethics but do not recognize or act upon ethical issues in their day-to-day managerial responsibilities. Most ethical questions arise from people relationships within the organization. Managers must realize that ethics is the process of deciding and acting. Recent survey results in one large organization indicate that only 26% of managers believe they are recognized and reinforced for their ethical decisions and behaviors. Employees have a big stake in the way managers evaluate and operate. Managers and non-supervisory employees alike cite concern about "politics and lack of fair treatment, honesty, and truthfulness" in connection with the performance review.

Experience has clearly indicated that the handling of performance review sessions is usually far more critical than the decision made or information conveyed in the session. Frequently, when unsuccessful candidates for promotions are notified of the decision that someone else has been selected they are not told why. Often they are not told anything, usually because the managers or supervisors do not feel equipped or skillful enough to explain the reasons in a systematic and rational way.

Sometimes, major miscommunications occur in performance review sessions due to basic differences in ethical orientation. For example, the reviewer may say, "That report is a requirement, and we need to follow the rules of the organization." The person being reviewed may reply, "I make a significant contribution to this organization, and I don’t have time to prepare reports that no one looks at. Judge me on what I accomplish." What is going on here? The reviewer is concerned with decisions and actions that conform to basic principles and rules (adherence). The employee appears to be oriented toward the outcome – the ends justify the means (results). They are talking on two different, non-connecting planes. Unless the employee and the reviewer are successful in negotiating an ethical balance, each may view the other as taking unfair shots – and the battleground will be the performance review process.

The overall objective of high-ethics performance review should be to provide an honest assessment of performance and to mutually develop a plan to improve the individual’s effectiveness. That requires telling people where they stand and being straight with them. It is important to keep the following points in mind:

· What are the primary objectives of the organization – i.e., what is the organization’s purpose?

· What is valued most – adherence or results?

· How is this person expected to contribute to the organization?

· What is this person’s position on the team?

· How well does he or she fill that position?

If the manager really wants to know what concerns the individual he should ask the following questions:

What results do he expect from this performance review session?

· What is his biggest frustration?

· How does he feel about his department and the organization?

· What does he want to accomplish?

· How does he want to spend your time?

Q.2 Mr. Sunil is a manager in a manufacturing company. He thinks that his subordinates are inherently lazy, avoid work and they needs supervision to perform tasks and therefore he shows authority over his subordinates’. According to McGregor theory, what assumptions Mr. Sunil is having of his subordinates. And also elucidate McGregor both the theories. [10 Marks]

According to McGregor theory Mr. Sunil is having ‘Theory X’ assumptions of his subordinates.

McGregor’s X-Y theory

Douglas McGregor proposed two distinct sets of assumptions as to what motivates people – theory X and theory Y

In theory X, McGregor proposes that management assumes employees are inherently lazy and will avoid work if they can. Due of this workers need to be closely supervised and comprehensive systems of controls developed. A hierarchical structure is needed with narrow span of control at each level. According to this theory employees will show little ambition without an enticing incentive program and will avoid responsibility whenever they can. Usually managers feel the sole purpose of the employees interest in the job is money. They will blame the person first in most situations, without questioning whether it may be the system, policy, or lack of training that deserves the blame.

Assumptions under Theory x (’authoritarian management’ style)

· The average person dislikes work and will avoid it he/she can.

· Therefore most people must be forced with the threat of punishment to work towards organizational objectives.

· The average person prefers to be directed; to avoid responsibility; is relatively not ambitious, and wants security above all else.

· Employees shirk responsibilities and seek formal direction whenever needed.

In theory Y McGregor proposes that management assumes employees may be ambitious, self-motivated, anxious to accept greater responsibility, and exercise self-control, self-direction, autonomy and empowerment. It is believed that employees enjoy their mental and physical work duties. It is also believed that if given the chance employees have the desire to be creative and forward thinking in the workplace. There is a chance for greater productivity by giving employees the freedom to perform at the best of their abilities without being bogged down by rules.

Assumptions under Theory y (’participative management’ style)

· Effort in work is as natural as work and play.

· People will apply self-control and self-direction in the pursuit of organizational objectives, without external control or the threat of punishment.

· Commitment to objectives is a function of rewards associated with their achievement.

· People usually accept and often seek responsibility.

· The capacity to use a high degree of imagination, ingenuity and creativity in solving organizational problems is widely, not narrowly, distributed in the population.

· In industry the intellectual potential of the average person is only partly utilized.

Q.3 Write notes on: Management by Objectives Behavioral Anchored Rating Scales Graphic Rating scale Behavioral checklist [10 Marks]

Management by Objectives

Management by objectives (MBO) involves setting specific measurable goals with each employee and then periodically discussing his/her progress toward these goals. The term MBO almost always refers to a comprehensive organization-wide goal setting and appraisal program that consist of six main steps:

1. Setting the organization’s goals: Establishment of organization-wide plan for next year and goal setting.

2. Setting of departmental goals: Here department heads and their superiors jointly set goals for their departments

3. Discussing and allocating department goals: Department heads discuss the department’s goals with all subordinates in the department (often at a department-wide meeting) and ask them to develop their own individual goals; in other words, how each employee can contribute to the department attaining its goals?

4. Defining expected results (set individual goals): Here, department heads and their subordinates set short-term performance targets.

5. Performance review and measurement of results: Department heads compare actual performance for each employee with expected results.

6. Providing feedback: Department heads hold periodic performance review meetings with subordinates to discuss and evaluate progress in achieving expected results.

BARS – Behaviorally Anchored Rating Scales

Behaviorally anchored rating scales (BARS) are rating scales whose scale points are defined by statements of effective and ineffective behavior. They are said to be behaviorally anchored in that the scales represent a continuum of descriptive statements of behaviors ranging from least to most effective. An evaluator must indicate which behavior on each scale best describes an employee’s performance.

BARS differ from other rating scales in that the scale points are specifically defined behavior. Also, BARS are constructed by the evaluators who will use them. There are four steps in the BARS construction process:

1. Listing of all the important dimensions of performance for a job or jobs

2. Collection of critical incidents of effective and ineffective behavior

3. Classification of effective and ineffective behaviors to appropriate performance dimensions

4. Assignment of numerical values to each behavior within each dimension (i.e., scaling of behavioral anchors)

Sample of BARS

Interpersonal Skill Description: Develops and maintains a friendly rapport with others; demonstrates sensitivity to their feelings; respects the dignity of others and responds with empathy to their own sense of self-worth.

Ratings 1 and 2: Demonstrates the ability to get along well with subordinates, managers, and peers; strives to achieve work group objectives. Can express own ideas, thoughts, and feelings and considers the needs, ideas, and feelings of others.

Ratings 3 and 4: Demonstrates the ability to apply factors of effective listening, on a one-to-one basis, such as displaying interest, not interrupting when another is speaking, and withholding judgments. Consistently provides honest (both positive and negative) feedback and provides constructive criticism when appropriate.

Ratings 5 and 6: Demonstrates ability to consistently consider and respond to the needs and ideas of others which encourages and stimulates further communication. Effectively listens in group or one-to-one situations involving distractions, stress, complex information, or when the person speaking is emotional or distraught. Creates or maintains a positive working environment that encourages expression of thoughts, ideas, and feelings.

Graphic Rating

Graphic rating scales are one of the most common methods of performance appraisal. Graphic rating scales require an evaluator to indicate on a scale the degree to which an employee demonstrates a particular trait, behavior, or performance result. Rating forms are composed of a number of scales, each relating to a certain job or performance-related dimension, such as job knowledge, responsibility, or quality of work. Each scale is a continuum of scale points, or anchors, which range from high to low, from good to poor, from most to least effective, and so forth. Scales typically have from five to seven points, though they can have more or less points. Graphic rating scales may or may not define their scale points.

Acceptable rating scales should have the following characteristics:

1. Performance dimensions should be clearly defined.

2. Scales should be behaviorally based so that a rater is able to support all ratings with objective, observable evidence.

3. Abstract trait names such as "loyalty," "honesty," and "integrity" should be avoided unless they can be defined in terms of observable behaviors.

4. Points, or anchors, on each scaled dimension should be brief, unambiguous, and relevant to the dimension being rated. For example, in rating a person’s flow of words, it is preferable to use anchors such as "fluent," "easy," "unimpeded," "hesitant," and "labored," rather than "excellent," "very good," "average," "below average," and "poor."

Carefully constructed graphic rating scales have a number of advantages:

1. Standardization of content permitting comparison of employees.

2. Ease of development use and relatively low development and usage cost.

3. Reasonably high rater and ratee acceptance.

A disadvantage of such rating scales is that they are susceptible to rating errors which result in inaccurate appraisals. Possible rating errors include halo effect, central tendency, severity, and leniency. The halo effect occurs when a rating on one dimension of an appraisal instrument substantially influences the ratings on other dimensions for the same employee. As a result of the halo effect, an employee is rated about the same across all performance dimensions. Central tendency is the lack of variation or difference among ratings of different subordinates, wherein most employees tend to be rated as average. Leniency refers to an evaluator’s tendency to rate most employees very highly across performance dimensions, whereas severity refers to the tendency to rate most employees quite harshly.

Behavioral Checklist

A behavioral checklist is a rating form containing statements describing both effective and ineffective job behaviors. These behaviors relate to a number of behavioral dimensions determined to be relevant to the job.

Items from a behavioral checklist for a salesperson’s job 

Instructions : Please check the statements descriptive of an employee’s behavior.

1. Calls on customers immediately after hearing of any complaints.

2. Discusses complaints with customer.

3. Gathers facts relevant to customers’ complaints.

4. Transmits information about complaints back to customers and resolves problems to their satisfaction.

5. Plans each day’s activities ahead of time.

6. Lays out broad sales plans for one month ahead.

7. Gathers sales information from customers, other salesmen, trade journals, and other relevant sources.

Behavioral checklists are well suited to employee development because they focus on behavior and results, and use absolute rather comparative standards. An advantage of behavioral checklists is that evaluators are asked to describe rather than evaluate a subordinate’s behavior. For this reason, behavioral checklists may meet with less evaluator resistance than some other methods. An obvious disadvantage of behavioral checklists is that much time and money must be invested to construct the instrument.

MBA Semester 4MU0008 – Talent Management & Employee Retention

Assignment Set – 1

Q.1 Explain the talent Management imperative.

The talent management imperative

It is estimated that organizations spend anywhere from 40 to 70 percent of their total operating spend on payroll and other direct employment expenses. And yet, very few organizations make decisions about their people with the same discipline and confidence as they do about money, clients and technology. Organizations that focus on maximizing their investment in people, rather than administering it, understand they will gain a significant competitive advantage.

Organizations embark on the path toward maximizing their investment in people by first identifying the workforce as an asset. This asset requires the same level of business discipline for optimization and management that would be expected of other business capital (i.e. financial, property, technology, etc.). Organizations that effectively optimize human capital focus their talent management strategy around three key principals: business focus, agility and alignment. Talent management has emerged as a corporate mandate for organizations seeking to create competitive advantage through human capital assets.

It’s About the Business

After years of paying lip service to the notion, successful organizations are beginning to take action on the all too common platitude “our workforce is our greatest asset.” They are linking key business initiatives with talent management principles to rapidly address new business opportunities and challenges, ultimately developing and allocating the right people with the right skills and experience at the right time.

By increasing productivity and motivating workforce behavior, talent management leads to higher levels of organizational performance, including:

• Rapid product introductions

• Improved service delivery

• Increased innovation

• Lower production costs

• Increased on-time, on-budget projects

• Higher customer satisfaction

• Sustained organizational improvements

The Agile Workforce

For most organizations, the last decade has been defined by the search for incremental and sustainable increases in productivity, profitability and competitive edge. Organizations expanding into new markets and developing new products and services depend on their people to conceive, communicate, lead and execute those initiatives. Being able to rapidly address new organizational opportunities and challenges by developing and allocating the right people with the right skills is the essence of workforce agility.

Organizations are increasingly recognizing that they lack insight into their current workforce and lack an understanding of how the HR function can fundamentally assist in enabling the execution of business plans. Progressive HR leaders understand that they can begin to contribute to organizational initiatives by establishing business processes that manage the supply and demand of talent. Integrated and dynamic internal mobility, succession, career development and recruiting processes enable organizations to optimize the knowledge, skills and deployment of their workforce to meet the goals of mission critical initiatives.

The Aligned Workforce

To successfully execute business objectives of growth, profitability, customer satisfaction, etc., companies must align the performance of their people to corporate goals. That is, people must understand what they need to do, be able to do it and be rewarded for doing it well. Successful organizations recognize that their competitive differentiation hinges on ability to purposefully connect the workforce with the business goals and to motivate behavior that contributes to organizational performance.

In aligning an organization’s workforce, new processes and enabling technologies essentially transpose strategy statements into day-to-day work activities that can be measured. Effective alignment allows work to be measured through performance metrics and scorecards to create a shared vision. Cascading goals establish a direct line of sight from what an individual does, to the measured business result, instilling a greater sense of personal accountability towards a common goal.

As the final component to a fully aligned environment, executives must establish incentives that link individual behavior and success to the achievement of corporate objectives. Pay-for-performance reward structures serve to motivate behavior that supports the goals and strategy of the organization. Those that have deployed consistent, unbiased pay-for-performance initiatives have realized strong benefits, both qualitative and quantitative.

Q.2 Describe Pre -Employment testing.

 Pre employment testing

Employee tests have become commonplace in the corporate hiring process, as basic and expected as application forms. Such tests usually are developed by industrial psychologists who specialize in personnel profiling. Once designed, they are validated and then distributed for commercial use.

Most pre-employment assessments are available in one of two forms, standardized or customized. Myers-Briggs, for example, is standardized and covers all fields and industries. The only change has been the recent adaptation to teams. Customization involves bundling selected questions to accommodate the preferences of various industries or companies or to focus on certain job descriptions or management levels.

In all instances, the test results are used to qualify or disqualify job seekers and determine a small pool of candidates for the next step in the recruitment process. But how helpful are such tests in winnowing the wheat from the chaff? And how can they be used to measure not only applicants’ native talent but also their capacity for professional growth and development?

Both outcomes are critical to the success of talent management initiatives. They also reflect the talent manager’s dual responsibilities for tracking and communicating changing workforce patterns on the one hand and establishing individual baselines for benchmarking and measuring employee development on the other.

Ideally then, pre-employment testing should be both short- and long-term, focused on present as well as future fit. It also should make the process more predictive. But such results require targets for measurement that are more precise and focused than just generalized assessments.

Although the exact data sought might vary by company and industry, the search must always strike a balance between sizing up future potential and verifying the candidate does, indeed, have the requisite company-driven skills and competencies for the current position. Aligning both leads to the development of a preferential performance profile that generates the recruitment targets that are the most characteristic of company’s mission and culture.

The challenge is how to test for the characteristics that predict and drive professional growth. It requires going deeper into areas normally left unexamined: who we are, how we have come to be that way, our values and career preferences, how we relate, how we learn, how we work, how we work together and, finally, whether we can change. The challenge is compounded by the need for privacy on the one hand and the general lack of such testing tools on the other.

One approach is to grant candidates greater access to job information and involvement with the company. Asking qualified applicants to get involved in and observe the results of the various available simulations is a viable option. Indeed, such involvement seeks to reflect the same kind of forward-looking answers sought by situational "what if" questions, but it might prove to be a better way of eliciting such anticipatory behaviors. The dynamic environment of most simulation dramas is so involving and spontaneous that little, if anything, can be faked or hidden. It also can easily accommodate preferred company targets.

Organizational and job-specific preferences can be accommodated through customized simulation design, as well. Customized simulations can provide prospective employees with the key performance preferences that define the company’s workforce mission. Such simulations also can elicit and measure growth capacity in interpersonal terms. Examples include:

•    Work as mutual dependency. •    Work as interpersonal relationships, not solely job functions. •    Integration of what is known with what others know. •    Demonstration, negotiation and persuasion skills. •    Use of communication and collective problem solving.

Using the same simulations over time can generate an additional baseline for qualifying candidates in terms of not just current but also future fit. Companies using this approach can consider the kind of talent they need now, and they can face future challenges.

A different approach, which is more invasive and time-consuming, asks candidates to undertake an introspective and reflective journey designed to link who they are with how they learn and change. It is not a step that candidates make without encouragement, and easing them into self-revelation requires a gradual, step-by-step process. Its major stages need to be structured so that they appear progressive and cumulative and offer reassurances along the way. This approach typically involves at least five stages:

•    Compiling a personal inventory. •    Identifying its operating values. •    Portraying its operating relationships. •    Assessing the learning potential of that inventory. •    Linking the personal inventory and learning potential to job performance.

Throughout, the focus remains on three major relationship clusters: self, others and teams. Each of the five stages would solicit responses in those areas based on both current attitudes and future-focused aspirations. The summary profile that would emerge might look like the following current/future statements:

•    This is who I am. This is who I want to be. •    This is what I value. This is what I want to value more. •    This is how I relate. This is how I wish to relate differently. •    This is how I learn. This is how I "unlearn" and change. •    This is how I work. This is how I work more productively.

During the final assignment, each participant would be asked to assemble a composite narrative profile, selectively using the input from the above five areas. With this approach, recruitment, training and retention can be grounded in each employee’s unique identity, motivations and belief system. Moreover, although it is inevitably personal, it does not pry. It is a voluntary exercise of self-study and self-reviews.

In the process, it establishes explicit key links between employee and work, between personal values and work behaviors, and between individual learning styles and performance improvement. It also identifies the key motivators for change.

Above all, it compels employees to perceive interpersonal relationships as knowledge relationships and job satisfaction as mutual. It dramatizes how transformational such relationships can be and the extent to which they can lead to increased knowledge and improved job performance.

Using nontraditional tests and assessments during the hiring process to identify the potential for professional development can pay off in several ways. It contributes to building a workforce that can perform well today, as well as grow and develop along with the organization.

Hiring employees with the potential for growth also seeds the workforce with change agents who can help the organization evolve along desired lines and shape the future of the company culture.

Q.3 Apex is a firm facing high attrition rate. The Management is highly concerned about the attrition. They are investing on the candidates by training them and after some time employees are leaving the organization. There are costs associated with hiring besides talent crunch. Mr. Ravi the HR Manager has given the responsibility to design strategies for retention. Suggest few components and strategies to achieve retention

Retention strategies

Some guidelines that one can apply in the Organization to improve the retention:- Show employees that you have an interest in their success

60 to 70 per cent of workers do not feel that their companies help them to develop their career. Managers of successful companies are acutely aware that even the most brilliant business model will not work without skilled individuals motivated by a culture of management concern.

Allow employees the room to develop their skills

Many employees find themselves trapped in a narrow job function so mission-critical that the organization cannot afford to move them. Frustrated employees, unable to satisfy their need for growth, resign, leaving holes that disrupt the company’s workflow in the short term. The company also loses strong performers who could have filled other, more important, roles over the long term.

Give employees a clear idea of the long-term goals of the company

Three quarters of unhappy employees do not believe that their company knows where it is going. Companies should endeavour to change their perceptions by communicating effectively to employees the direction it wants to take. This should be followed up with behaviour that is consistent with what they have told employees!

Measure soft skills

Many companies say they value people and train their management team to cope with people issues. Yet these same managers are rewarded based on their technical skills and financial results. Too often, people

skills are not rewarded and no measure exists to evaluate them. Employees get the message that, “people skills do not matter” and so neither do people.

Fight turnover with smart training

Two principles can help companies score big retention wins through training. Firstly, keep it relevant. Some firms act as though any training is better than none. From the employees’ perspective, that is not true. If training is not relevant to their jobs they feel it is a waste of time. Secondly, use training to broaden experience. Companies too often provide training that merely reinforces old skills instead of building new ones.

Develop your management team

People see good bosses as the wind beneath their wings, and employees who lack confidence in their bosses will leave the organization sooner rather than later. A key retention strategy is to weed out marginal managers. Replace them with managers who can craft a compelling game plan, communicate it effectively to their teams and deploy initiatives that are consistent with company strategy.

Weed out poor performers in non-management ranks

Managers often under-estimate how strongly employees resent the presence of underperformers within their work group. The productive employee often has to take on more work to compensate for the poor performance of others, and they can feel that management is either turning a blind eye to unjust practices, or does not have sufficient interest in what goes on “below decks” to notice any disparity in working practices amongst employees. When the slackers are weeded out, both morale and retention improve.

MBA Semester 4MU0008 – Talent Management & Employee Retention

Assignment Set – 2

Q.1 Write down the steps for compensation based talent management.

Steps for Compensation based Talent Management

According to a study reported in the June 2005 issue of the Harvard Business Review, ‘people-driven’ businesses are now predominant. But many companies, even in people businesses, do not yet have the talent management processes they need to excel. While organizations have perfected sophisticated techniques for managing capital investments, suppliers and the production and flow of goods and services, their capabilities in managing people seriously lag.

In their article, "The Surprising Economics of a ‘People Business’" consultants Felix Barber and Rainer Streck argue that people are now the most significant cost in many industries when compared to spending on capital, R&D and suppliers. In industries like advertising, IT services, financial and brokerage, engineering, telecommunications and health care, personnel represents the largest component of total spending (40 percent to 70 percent). These are what the authors refer to as people businesses. They have high overall employee costs, a high ratio of employee costs to capital costs and limited spending on activities like R&D.

Another category they identify is ‘people-oriented’ businesses. These are companies where spending on personnel, while not the largest component of total spending, is nonetheless significant because it exceeds capital costs. Companies in this category include software firms, airlines, restaurants, pharmaceutical and chemical companies, consumer goods and automotive. Only industries like utilities and oil spend more on capital costs than on people.

The authors assert that in people and people-intensive businesses, the performance of talent drives the overall performance of the company. And the distinct economics of people-driven businesses call not only for different business performance measures but also different management practices. In these businesses, where even "the slightest changes in employee productivity have a significant impact on shareholder returns, ‘human resource management’ is no longer a support function, but a core process for line managers."

It is agreeable with these assertions but would go one step further to say that in people-driven businesses talent management must be a core competence for the entire business. Not only should line managers be

adept at managing people but the corporation needs to have a robust people management capability that is clear, coherent, and applied company wide.

Many companies are only beginning to appreciate the importance of enterprise wide talent management. For example, an HR executive in a large services organization indicated that her firm was finally waking up to the importance of managing their talent in an integrated fashion across the enterprise. The company realized it was losing tens of millions of dollars a year in unnecessary recruitment and termination costs and lost productivity. It’s approach to recruitment was fragmented and not connected to other key talent management activities. It did not have an enterprise view of vacancies and surplus people across the organization. Development and deployment of people were separate and non-integrated activities. Lastly, there was no organizational focal point to oversee the process. The result was that for several years hundreds of people were laid off in one part of the business while hundreds of others, often with similar skills to those departing the organization, were hired in other parts of the company.

Regrettably, this situation is not unusual in many organizations today. Indeed, many companies are missing substantial opportunities to save costs and improve performance by upgrading their talent management capabilities. There are four steps that companies can take to quickly assess their talent management process and begin improving their talent management competency:

Step 1 – Identify Key Roles. Analyze the key steps in each part of the talent life cycle (identification and attraction, hiring and inculcation, motivation and development, appraisal and reward, building and sustaining relationships) and map the key players and their roles and responsibilities to each stage. Are there gaps in responsibilities – key activities that no one is directly accountable for? Are there overlapping responsibilities – multiple people responsible for the same activity? Are the right people in the right roles? Are line managers provided with consistent and effective processes, guidelines and tools for managing talent?

Step 2 – Take an Inventory of Your Talent Management Skills. Identify the critical skills needed to play the key roles in the talent life cycle effectively. To what extent does your company employ people who possess them? What might you do to improve or develop them? What are you doing in-house that might be better outsourced? What have you outsourced that you should be doing in-house?

Step 3 – Measure the Right Things. Assess the measures you use to evaluate the performance of your talent management process at each life cycle stage such as offer-to-hire ratios, average tenures of new hires, performance ranking, and skill fit to job requirements, etc. What data are you capturing and reporting? Does it feed directly into an enterprise talent scorecard? How do these measures align with your overall talent management strategy?

Step 4 – Set Up a Process-Wide Feedback Loop. Everyone managing talent needs to understand the big picture and to connect their role and responsibilities to the overall objectives of the process. How is data captured in each stage of the life cycle reported and communicated? How are knowledge and experiences shared across the process? Where are the information gaps and missed communications? How much feedback is formally captured and communicated versus informally discussed among staff? What key actions might you take to improve your feedback mechanisms? 

Q.2 What are the 5 steps to strategic talent planning? Elaborate

The 5 Steps to Strategic Talent Planning

Recruiting rarely is based on any sort of strategic plan. For most organizations, recruiting is a tactical operation – a series of things that take place that result in qualified people getting hired. It is mostly reactive, and few recruiters have the time or charter to look forward more than a few weeks. To ensure that your organization has a chance at hiring the best people – and to successfully operate in a global, competitive environment, organizations – you will need a strategic plan coupled to appropriate resources and tactics. Here’s a quick overview of the five essential first steps needed to put this plan together and to begin making it operational:

 The five key steps in strategic talent planningStep 1: Talent Plan

Workforce or talent planning is the first and hardest step. It means deeply understanding the organization’s business goals and the competitive environment the organization functions in. It is a combination of understanding and predicating demand, while at the same time being educated and aware of the talent supply situation from all the sources that are available. This step needs to be far more than simply listing the jobs projected in the annual budgeting process and factoring in turnover. It is an evolving process, as opposed to an annual event, and is the most dynamic and critical stage of any strategic process.

Step 2: Image and Brand

It is not true that if you build a great strategy or a great organization, people will necessarily flock to your doors. Getting people aware of your organization is a tough job. It requires having a consistent communication process as well as a plan to raise general awareness through advertisements, promotions, or by getting listed as a "best place to work." You have to be able to answer questions like, "What makes your company different or unique?" or "Why would I want to come work for you?" Not only should you have answers to these questions, but you should also make sure your advertising, web presence (which is essential), and overall corporate advertising support this image. This has to be an organization-wide effort. It takes time and an accumulation of messages to be effective. One or two advertisements or a handful of posters will not do it.

Step 3: Sourcing Methods

Develop a multi-faceted sourcing strategy. Embrace active candidates who are responding to your brand and image-building messages, but maintain the capacity and skills to tap passive candidates. Decide based on past experience what works best for you in locating candidates, and then build those sourcing channels to the max. Make sure you are using referrals from current employees, your network of professionals, web-based search, your own web site and also develop methods to keep in touch with potential candidates that you have no current position for but might have at some later time.

Step 4: Screening and Assessing Candidates

Are you going to invest heavily in educating managers in behavioral interviewing? Are the recruiters going to be the main screeners, or will you use testing and other tools? What role will the Internet play, if any? Are you going to look into using web-based tests? How much will you rely on candidates screening themselves out or in? What role does the hiring managers play in screening and assessing, and what are the differences between what you do and they do? This is an area where there can be great improvement with reasonable effort, but where things are still done mostly the way they have always been done. A focus on automating screening to some degree reduces the volume of candidates and actually raises candidate satisfaction.

Step 5: Market and Communicate

Candidates want to be in the know about their status and prospects. They seek out feedback and information. Your organization’s website is an invaluable tool, but you will also need to develop systems to communicate with candidates personally and to send out newsletters and emails. Probably all the people you need at one time or another sent a resume or expressed interest. They were most likely told that there were no current openings. Would it no’t be wonderful if you could actually stay in touch with those people and let them know when there is an open position? That’s what CRM (candidate relationship management) systems can do. Unfortunately, they are not yet generally available or optimized for recruiting. But ask your ATS vendor what they doing about this and urge them to provide you the tools you need to effectively keep qualified candidates interested in you. Make sure that whatever systems you choose fit your strategy and make economic sense

A few other things to keep in mind:

· Make sure all managers and recruiters have a simple system for deciding on a candidate. As you know, speed is the real differentiator today, and the recruiter/manager who moves the most quickly will usually get the candidate. Eliminate unnecessary approvals, and make sure your selection criteria are clear to avoid slowing down the process.

· If you are a decentralized firm, work out a system for who owns what. If you all agree together then the areas of dispute will be limited. The rule I use is that the central or corporate function should set standards and establish corporate-wide systems. Local offices should participate in that process and have great autonomy on the day-to-day stuff. They can supplement broad image and branding activities with local advertising within the bounds of an agreement you all make with one another.

These initial steps and processes are what enable the back-end activities of scheduling, interviewing, making offers, and on-boarding.

Q.3 Think of a situation in which you as team leader have to explain why HRIS or IT is important in talent management and how it helps an organization. Supplement your answer with suitable examples. ?

The world of performance management processes and performance reviews has changed drastically over the years, in both policy and principle. Best-of-breed companies are using the performance management process not only to manage compensation, but also to manage the performance of the workforce and drive it to new strategic levels.

In most companies, the performance management process can be integrated into the existing HRIS footprint through:

• Recruiting: This is one of the last places most organizations consider important for integration with performance, but it really is one of the most important. As talent becomes harder to find, recruiters look within their own house for the next applicant for that all-important job. Recruiters want the ability to understand internal applicants in greater detail than the external candidates, including a performance history and learning details to assess their fit for open positions. The integration of performance into the HRIS, where recruiting data often is housed, would open a new door for continued focus on internal mobility.

• Core HR Information: To manage the performance management process in the most effective and efficient manner possible, organizations must leverage the data that exists within their HR systems. This includes basic data, such as name, department and supervisor, but organizations do not often take advantage of other data that could be instrumental to the process. This data includes other employees in the department to support the 360-degree review process, the employees’ matrix reporting structure that many organizations adopt today and the comparative data available based on the job code of the employees. The ability to compare and contrast performance of employees with like jobs gives managers and executives visibility and decision-making tools that they have never had in the past.

• Career and Succession Plans: Most existing HR solutions provide tools and technologies to store career and succession plans for the workforce. Integrating these plans with performance management processes is crucial to support employee growth and job satisfaction. Executives have requested this data for years, as retention is a top metric within most companies. Today, this data is not a request, but a requirement, and the need to automate a very manual process is crucial for success and keeping a competitive edge.

• Competency Management: Understanding the skills and abilities of the workforce continues to baffle most executives. Many organizations know more about their IT investments and expenses than about their people. On an average, companies spend 8 percent of their total expense line on IT and 70 percent on labor. The fact that a company would know more about how much memory is in a computer, who sends e-mail to whom and what Web sites get visited most frequently than what their "most important asset" knows illustrates the need for a renewed critical focus on assessing the true value of the workforce.

• Compensation: For years, the purpose of the performance review has been to allocate annual salary increases. While this process has generally been handled manually, it also has seen a great deal of controversy and change. Compensation is truly the biggest driver of certain types of behavior and works differently for various job groups. Incentive compensation is a great tool to drive sales and specific performance targets, whereas base compensation is a great tool for driving overall employee satisfaction and improving performance. What has been missing in all links from compensation to performance is measurement of year-over-year increases in performance and the impact that compensation has on performance. Organizations that take an interactive view of the performance management process and ensure that compensation is just one of many outcomes, which might also include promotion, new opportunities for learning and development, and other forms of recognition, understand the importance of integrating performance and HRIS to measure total compensation and rewards. Organizations that still rely on a manual, semi-automated process as a once-a-year, meet-the-requirement tool will soon realize that the war for talent and staffing shortages will make it necessary to approach pay-for-performance as an integrated process.

• Reporting and Metrics: Another missing link for the performance management process that HRIS technology can assist with is in the area of reporting and metrics. The two reports that managers traditionally focus on in this area are transactional: How many have been turned in, and how do we look compared to a typical performance bell curve? This information may be great to have, but does it drive business results? Executives want answers to strategic questions, such as: What revenue increases have resulted from a performance management process and allocation of compensation increases? How has customer satisfaction increased because of an increased investment in agents? And how has employee turnover decreased because of a renewed focus on people? The sooner that those involved in the performance management process stop looking in the mirror at their performance throughout the process and put in place measures that

explain how the process has impacted business results, the more value and attention performance management will receive from executives.

Research shows that leading edge organizations (those who lead in the adoption of new practices) offer learning and development opportunities to over 80% of their workforce. In comparison, the figure for more conservative organizations (those which adopt practices only after they are proven effective) is only 41%. At Chandler Macleod, we consider this a key reason as to why retention rates in leading edge organizations aredouble those in more conservative firms.

The scarcity of talent and the impact of generational changes are set to intensify. As such, organizations need to be smarter about the ways they manage their talent to remain competitive. There are various ways that talent pools can be systematically nurtured and developed to strengthen and grow business success.

Talent Development can be defined as the selection, development and engagement of employees to further identify potential. Chandler Macleod partners with clients in all areas of Talent Development to design specialist, customised learning and development programs to suit employee and organizational needs.

MBA Semester 4MU0009 – Change Management

Assignment Set – 1

Q.1 Discuss culture driven change.

A culture is the values and practices shared by the members of the group. Company Culture, therefore, is the shared values and practices of the company’s employees. Company culture is important because it can make or break your company. Companies with an adaptive culture that is aligned to their business goals routinely outperform their competitors. Some studies report the difference at 200% or more. To achieve results like this for your organization, you have to figure out what your culture is, decide what it should be, and move everyone toward the desired culture.

Company cultures evolve and they change over time. As employee leave the company and replacements are hired the company culture will change. If it is a strong culture, it may not change much. However, since each new employee brings their own values and practices to the group the culture will change, at least a little. As the company matures from a startup to a more established company, the company culture will change. As the environment in which the company operates (the laws, regulations, business climate, etc.) changes, the company culture will also change.

These changes may be positive, or they may not. The changes in company culture may be intended, but often they are unintended. They may be major changes or minor ones. The company culture will change and it is important to be aware of the changes.

Assess the Company Culture

There are many ways to assess your company culture. There are consultants who will do it for you, for a fee. The easiest way to assess your company’s culture is to look around. How do the employees act; what do they do? Look for common behaviors and visible symbols.

Listen. Listen to your employees, your suppliers, and your customers. Pay attention to what is written about your company, in print and online. These will also give you clues as to what your company’s culture really is.

Determine the Desired Company Culture

Before you can change the company culture, you have to decide what you want the company culture to look like in the future. Different companies in different industries will have different cultures. Look at what kind of a culture will work best for your organization in its desired future state. Review your mission, vision and values and make sure the company culture you are designing supports them.

Here are some characteristics of company cultures that others have used successfully. Decide which work for your company and implement them.

· Mission clarity

· Employee commitment

· Fully empowered employees

· High integrity workplace

· Strong trust relationships

· Highly effective leadership

· Effective systems and processes

· Performance-based compensation and reward programs

· Customer-focused

· Effective 360-degree communications

· Commitment to learning and skill development

· Emphasis on recruiting and retaining outstanding employees

· High degree of adaptability

· High accountability standards

· Demonstrated support for innovation

Align the Company Culture

You need to align your company culture with your strategic goals if it is not already.

· Develop a specific action plan that can leverage the good things in your current culture and correct the unaligned areas.

· Brainstorm improvements in your formal policies and daily practices.

· Develop models of the desired actions and behaviors.

· Communicate the new culture to all employees and then

· Over-communicate the new culture and its actions to everyone.

Only a company culture that is aligned with your goals, one that helps you anticipate and adapt to change, will help you achieve superior performance over the long run.

Q.2 Write the techniques for managing change effectively.

Managing change effectively requires moving the organization from its current state to a future desired state at minimal cost to the organization. Bateman and Zeithaml identified three steps for managers to follow in implementing organizational change:

1. Diagnose the current state of the organization. This involves identifying problems the company faces, assigning a level of importance to each one, and assessing the kinds of changes needed to solve the problems.

2. Design the desired future state of the organization. This involves picturing the ideal situation for the company after the change is implemented, conveying this vision clearly to everyone involved in the change

effort, and designing a means of transition to the new state. An important part of the transition should be maintaining some sort of stability; some things – such as the company’s over-all mission or key personnel – should remain constant in the midst of turmoil to help reduce people’s anxiety.

3. Implement the change. This involves managing the transition effectively. It might be helpful to draw up a plan, allocate resources, and appoint a key person to take charge of the change process. The company’s leaders should try to generate enthusiasm for the change by sharing their goals and vision and acting as role models. In some cases, it may be useful to try for small victories first in order to pave the way for later successes.

"Successfully changing an enterprise requires wisdom, prescience, energy, persistence, communication, education, training, resources, patience, timing, and the right incentives,” John S. McCallum wrote in the Ivey Business Journal. "Successfully leading and managing change is and will continue to be a front-burner responsibility for executives. Prospects are grim for enterprises that either cannot or will not change. Indeed, no industry member is quite as welcome as the one that steadfastly refuses to keep up."

Q.3 Discuss the employee involvement in change management.

One cannot ever expect one hundred percent support from any individual who was not personally involved in devising a change which had an impact on his work. In any change, especially ones that affect a complete organization, it is impossible to involve every employee in each decision.

Employee Involvement for Effective Change Management

· Create a plan for involving as many people as possible, as early as possible, in the change process.

· Involve all stakeholders, process owners, and employees who will feel the impact of the changes, as much as possible, in the learning, planning, decisions, and implementation of the change. Often, in change management, a small group of employees learns important information about change and change management. If they fail to share the information with the rest of the employees, the remaining employees will have trouble catching up with the learning curve.

· If a small group makes the change management plans, employees affected by the decisions will not have had needed time to analyze, think about, and adjust to the new ideas. If you leave employees behind, at any stage of the process, you open the door in your change management process, for misunderstanding, resistance, and harm.

· Even if employees cannot affect the overall decision about change, involve each employee in meaningful decisions about their work unit and their work.

· Build measurement systems into the change process that tell people when they are succeeding or failing. Provide consequences in either case. Employees who are positively working with the change need rewards and recognition. After allowing some time for employees to pass through the predictable stages of change, negative consequences for failure to adopt the changes, are needed.

· You cannot allow the nay-sayers to continue on their negative path forever; they sap your organization of time, energy, and focus, and eventually, affect the morale of the positive many. The key is to know, during your change management process, when to say, enough is enough.

Help employees feel as if they are involved in a change management process that is larger than themselves by taking these actions to effectively involve employees in change management.

MBA Semester 4MU0009 – Change Management

Assignment Set – 2

Q.1 Discuss types of organizational teams

Most successful teams shape their purposes in response to a demand or opportunity put in their path, usually by higher management. This helps teams get started by broadly framing the company’s performance

expectation. Management is responsible for clarifying the charter, rationale, and performance challenge for the team, but management must also leave enough flexibility for the team to develop commitment around its own spin on that purpose, set of specific goals, timing, and approach. Some of the types of teams are:

Informal

· Social in nature

· Leaders may differ from those appointed by the organization

Traditional

· Departments/functional areas

· Supervisors/managers appointed by the organization

Problem-Solving

· Temporary teams

· Frequently cross-functional

· Focused on a particular project

Leadership

· Steering committees

· Advisory councils

Self-Directed

· Small teams

· Little or no status differences among team members

· Have authority to decide how to get the work done

Virtual

· Geographically spread apart

· Meetings and functions rely on available technology

Problem solving teams

Problem-solving teams or task forces are formed when a problem arises that cannot be solved within the standard organizational structure. These teams are generally cross-functional; that is, the membership comes from different areas of the organization, and are charged with finding a solution to the problem.

Leadership teams

Leadership teams are generally composed of management brought together to span the boundaries between different functions in the organization. In order for a product to be delivered to market, the heads of finance, production, and marketing must interact and come up with a common strategy for the product. At top management levels, teams are used in developing goals and a strategic direction for the firm as a whole.

Self-directed teams

Self-directed teams are given autonomy over deciding how a job will be done. These teams are provided with a goal by the organization, and then determine how to achieve that goal. Frequently there is no assigned manager or leader and very few, if any, status differences among the team members.

These teams are commonly allowed to choose new team members, decide on work assignments, and may be given responsibility for evaluating team members. They must meet quality standards and interact with both buyers and suppliers, but otherwise have great freedom in determining what the team does. Teams form around a particular project and a leader emerges for that project. The team is responsible for carrying out the project, for recruiting team members, and for evaluating them.

Virtual teams

Technology is impacting how teams meet and function. Collaborative software and conferencing systems have improved the ability for employees to meet, conduct business, share documents, and make decisions without ever being in the same location. While the basic dynamics of other types of teams may still be relevant, the dynamics and management of virtual teams can be very different. Issues can arise with a lack of facial or auditory clues; participants must be taken at their word, even when video-conferencing tools are used.

Accountability is impacted by taking a team virtual. Each member is accountable for their tasks and to the team as a whole usually with minimal supervision. Key factors in the success of a virtual team are effective formation of the team, trust and collaboration between members, and excellent communication.

The best teams invest a tremendous amount of time and effort exploring, shaping, and agreeing on a purpose that belongs to them both collectively and individually. This "purposing" activity continues throughout the life of the team. In contrast, failed teams rarely develop a common purpose. For whatever reason – an insufficient focus on performance, lack of effort, poor leadership – they do not coalesce around a challenging aspiration. The best teams also translate their common purpose into specific performance goals, such as reducing the reject rate from suppliers by 50% or increasing the math scores of graduates from 40 % to 95 %. Indeed, if a team fails to establish specific performance goals or if those goals do not relate directly to the team’s overall purpose, team members become confused, pull apart, and revert to mediocre performance. By contrast, when purposes and goals build on one another and are combined with team commitment, they become a powerful engine of performance.

Transforming broad directives into specific and measurable performance goals is the surest first step for a team trying to shape a purpose meaningful to its members. Specific goals, such as getting a new product to market in less than half the normal time, responding to all customers within 24 hours, or achieving a zero-defect rate while simultaneously cutting costs by 40%, all provide firm footholds for teams. There are several reasons:

· Specific team performance goals help to define a set of work-products that are different both from an organization-wide mission and from individual job objectives. As a result, such work-products require the collective effort of team members to make something specific happen that, in and of itself, adds real value to results. By contrast, simply gathering from time to time to make decisions will not sustain team performance.

· The specificity of performance objectives facilitates clear communication and constructive conflict within the team. When a plant-level team, for example, sets a goal of reducing average machine changeover time to two hours, the clarity of the goal forces the team to concentrate on what it would take either to achieve or to reconsider the goal. When such goals are clear, discussions can focus on how to pursue them or whether to change them; when goals arc ambiguous or nonexistent, such discussions are much less productive.

· The attainability of specific goals helps teams maintain their focus on getting results. A product development team at Ell Lilly’s Peripheral Systems Division set definite yardsticks for the market introduction of an ultrasonic probe to help doctors locate deep veins and arteries. The probe had to have an audible signal through a specified depth of tissue, be capable of being manufactured at a rate of 100 per day, and have a unit cost less than a pre-established amount. Because the team could measure its progress against each of these specific objectives, the team knew throughout the development process where it stood. Either it had achieved its goals or not.

· As Outward Bound and other team-building programs illustrate, specific objectives have a leveling effect conducive to team behavior. When a small group of people challenge themselves to get over a wall or to reduce cycle time by 50%, their respective titles, perks, and other stripes fade into the background. The teams that succeed evaluate what and how each individual can best contribute to the team’s goal and, more important, do so in terms of the performance objective itself rather than a person’s status or personality.

· Specific goals allow a team to achieve small wins as it pursues its broader purpose. These small wins are invaluable to building commitment and overcoming the inevitable obstacles that get in the way of a long-term purpose. For example, the Knight-Ridder team mentioned at the outset turned a narrow goal to eliminate errors into a compelling customer-service purpose.

· Performance goals are compelling. They are symbols of accomplishment that motivate and energize. They challenge the people on a team to commit themselves, as a team, to make a difference. Drama, urgency, and a healthy fear of failure combine to drive teams who have their collective eye on an attainable, but challenging, goal. Nobody but the team can make it happen. It is their challenge.

The combination of purpose and specific goals is essential to performance. Each depends on the other to remain relevant and vital. Clear performance goals help a team keep track of progress and hold itself accountable; the broader, even nobler, aspirations in a team’s purpose supply both meaning and emotional energy.

Virtually all effective teams we have met, read or heard about, or been members of have ranged between 2 and 25 people. For example, the Burlington Northern "piggybacking" team had 7 members, the Knight-Ridder newspaper team14. The majority of them have numbered less than 10. Small size is admittedly more of a pragmatic guide than an absolute necessity for success. A large number of people, say 50 or more, can theoretically become a team. But groups of such size are more likely to break into sub-teams rather than function as a single unit. Why? Large numbers of people have trouble interacting constructively as a group, much less doing real work together. Ten people are far more likely than fifty are to work through their individual, functional, and hierarchical differences toward a common plan and to hold themselves jointly accountable for the results. Large groups also face logistical issues, such as finding enough physical space and time to meet. And they confront more complex constraints, like crowd or herd behaviors, which prevent the intense sharing of viewpoints needed to build a team. As a result, when they try to develop a common purpose, they usually produce only superficial "missions" and well-meaning intentions that cannot be translated into concrete objectives. They tend fairly quickly to reach a point when meetings become a chore, a clear sign that most of the people in the group are uncertain why they have gathered, beyond some notion of getting along better. Anyone who has been through one of these exercises knows how frustrating it can be. This kind of failure tends to foster cynicism, which gets in the way of future team efforts.

Q.2 Mr. Ram is working in ‘United India’ a public sector company for last 15 years. The organization is facing competition from various private and Multinational companies. To meet the challenges, management has decided to update their information system by integrating information technology in every sphere of functioning. Mr. Ram is accustomed to manual working system. He finds the new technology and its working difficult to cope up with. To him the new technology is a threat for his job performance. His professional and personal life is badly affecting due to his new found job stress. After listening to his problem his friend suggest him to develop self mastery. What nature of problem Mr. Ram is facing? What is self mastery? Explain the various spheres of self mastery that Ram should follow to cope up the situation?

Humans are multi-dimensional creatures. We are physical, emotional, mental, and spiritual beings. Self mastery is the intentional pursuit of growth and development in each of these areas. The physical aspects of self mastery pertain to maximizing your body’s health and vitality, including strength, flexibility, and cardio vascular training, as well as getting adequate rest and eating a healthy diet.

On the emotional level, self mastery includes: 1) developing your ability to identify and accept your emotions, 2) being authentic, 3) releasing negative emotions in healthy and constructive ways, 4) being sensitive to others, 5) expressing emotional vulnerability, and 6) fostering close and meaningful relationships.

The mental aspects of developing greater self mastery focus on your mindset, in particular, your fundamental assumptions and beliefs. This is a key component of self mastery because mindset is causative and determines your potential for success. Here is how: your beliefs and assumptions determine your perceptions and judgments, which then trigger your emotions and behaviors, which in turn determine your performance and results. In other words, the seed of each of your successes and failures is always your mindset.

Spiritually, in the context of change leadership, self mastery pertains to knowing who you are, pursuing your purpose in your work, being connected to your higher self, and living in integrity with your core values. Being in touch with these deeper aspects of yourself shapes your change leadership strategies and behaviors, and unleashes your creativity, passion and energy.

Behavior is the fifth area of self mastery. Behavior is the external manifestation of deeper internal processes. When you identify a behavior you seek to change, you will need to also discover the beliefs and emotional

reactions that drive that behavior. Behavior change in its complete form touches all four other areas of self mastery.

Self mastery requires introspection. Most people do not intentionally pursue self mastery because they focus mostly on external reality – the physical and material – and neglect the internal world of their values, beliefs, thoughts, and feelings. You must turn inward to discover and change your mental, emotional, and behavioral conditioning.

Self mastery requires honesty, courage, and compassion for yourself. You will not like everything you discover, but through accepting it, you can grow into higher expressions of yourself. Self mastery is not an end state. Rather, it is a life long process; a way of living that honors the fact that the more you grow as a person, the more you can contribute to others and yourself. “That all sounds nice,” you might say, “but what does it really have to do with leadership, especial transformational leadership?” Let’s see.

Q.3 Explain stages of organizational change.

Organizational change can be conceptualized in 4 broad stages:

Awareness Adoption Implementation Institutionalization

Each stage is important in the development, implementation and maintenance of a palliative care program. Once the program has been institutionalized (stage 4), change continues within the program and the organization through an ongoing cyclic process of assessment and innovation.

Stage Components Operationalization

1. Awareness

· Identify Needs

· Search For Possible Solutions

· Create Tension For Change

· Conduct Needs Assessment

· Brainstorm / Research Ways To Meet Needs

· Communicate Needs To Key Leaders

2. Adoption

· Decide Upon A Course Of Action

· Formulate Policy/Procedure For Implementing Change

· Allocate Initial Resources

· Develop A Proposal

· Present The Proposal To Key Stakeholders

· Key Personnel Have Time And Resources To Plan

3. Implementation

· Resources Allocated For Implementation

· Carry Out Innovation

· Observe Reaction Of Organization Members

· Define Roles

· Obtain Resources To Launch Program (Money, Staffing, Physical Space, Etc.)

· Begin Palliative Care Practice And Observe Response.

· Market Palliative Care Program.

· Form Clear Roles Among Program Staff

4. Institutionalization · Integrate Innovation Into Routine Organization Operations

· Referrals To Palliative Care Program Become Regular

· Internalize Goals And Values Surrounding Innovation

· Policies And Procedures Guide Care

· Palliative Care Throughout Institution Improves

· Evaluation Leads To Improved Care