STRATEGIC BUSINESS ANALYSIS

TOPIC 1- CORPORATE OBJECTIVES, STRATEGY AND STRUCTURE

Corporate Objectives

Introduction
 Primary and Multiple Business Aims
 Till about the mid 1970’s, it was generally conceded that there was
but one aim in business and that was to maximize profits (Neo-
Classical Economic Theory) –Adam Smith
 However, there has been a growing recognition that all but the
smallest enterprise has multiple objectives
 What are Corporate Objectives?
 Peter Drucker says the primary objective is to Maximize
Shareholder’s Wealth (in the long run)
 This view is now accepted by those subscribing to Shareholder’s
Value school.
 He also says that an objective must be:
 Quantifiable and achievable
 It is the desired end state of a period of activity
 Reasons for Corporate Objectives
 Objectives provide motivation
 Guidelines for actions
 Set the style of the business
 Provide the basis for measuring Performance
 Conflicting Objectives
 If corporate objectives are to be achieved, areas of potential
conflict should be identified and resolved.
 Degree of Priority (what is the most important
objective?)
 Short term vs Long term perspective
 Economic vs Non-Economic
 Personal vs Organization Goals
 State vs Multinational Companies
 Financial Aspects of Corporate Objectives
 Levels of Corporate Objectives
 The Primary Objective is that objective that is central to the
business as a whole organization:
- Which should be clearly stated; and
- Capable of being measured and attainable with effort.
- This corporate objective is often stated in the chairman’s report
as part of the annual published accounts of a company.
 Secondary Objectives: These can be either short term or long
term and support the corporate objective, e.g.:
- Reducing labor costs by 10%
 - Reducing materials cost by 5% through a revision of product
recipes or mixes.
- Developing export sales to Europe by 5% of total sales volume
in the coming financial year.

Example: Profitability and Market Share Objectives (Capital Budgeting Problem-MAS)

If the result of NVP is greater than or equal to Zero, then accept the project
Finance Objective- the company has a choice whether to accept the project or not
Marketing Objective- the company has no choice but to accept the project despite financial
loss. The market dictates the business what share in the market is obtained.

Objectives of Business

The business is an economic institution operating in a socio-economic system.

Therefore, objectives of business should be defined keeping in view its prevailing environment
and its needs for survival and growth. Like any other institution business has several rather than
a single objective.

Objectives of business are multi-dimensional in nature. Business is established and it exists to

achieve multiple objectives.

People enter into business and stay in business because they want to earn money, social power
and prestige, joy of achievement and other goals.

Generally, profit motive is considered to be the primary objective of business. But profit-making
is not the sole or only objectives of a business. Every business enterprise has to lay down its
multiple objectives to justify its existence.

The objectives of business can be studied under the following heads:-

1. Economic Objectives 2. Social Objectives 3. Human or Individual Objectives 4. Multiple

Objectives 5. Organic Objectives 6. Micro Level Objectives 7. National Level Objectives 8.
Global Objectives.

Classification of Business Objectives

Objectives of Business – Profitability, Growth, Stability, Efficiency and Survival

Business means busy in some activities. Business means conducting activities such as – sale,
purchase and manufacturing etc for profit and growth. Business is also referred to a particular
company, enterprise or corporation.
A business always has some purpose and no doubt the most important purpose of business is
achieving profitability and growth.

Followings are the some important objectives of business:

 1. Profitability – This is one of the most important objectives of business. We normally
setup business to achieve profits for its owner or shareholders. But, does it mean that
business should somehow, by hook or crook, earn the profit? Our answer is no; it should
earn profit by working under rules and regulations or by following ethical practices.
2. Growth – Another important objective of business is to achieve growth. The growth
should be in terms of increase in profit, revenue, capacity, number of employees and
employee prosperity, etc.

3. Stability – Stability means continuity of business. An enterprise or business should

achieve stability in terms of customer satisfaction, creditworthiness, employee
satisfaction etc. A stable organization can easily handle changing dynamics of markets.

4. Efficiency – An efficient or aggressive working environment. A business should always

try to achieve the best in its field. Efficiency is considered in terms of labor productivity,
energy consumption, quality control etc.

5. Survival – A business should have the capability to survive markets jolts or shocks. A
business should be there with a vision of long-term existence.

Objectives of Business – Economic, Social, Human or Individual and Multiple

Objectives

Every business is directed to the achievement of certain objectives.

Objectives refer to the end points towards which all business activities are directed:

Objectives lay down the guidelines for various activities and decide the direction and amount of
efforts needed for these activities. Objectives should be feasible and must be expressed in
specific terms with a time limit for achievement. For example, the objective of a mobile
company can be to increase the mobile users by 10% in 2 years.

Business Objectives may be broadly classified into three categories:

1. Economic Objectives
2. Social Objectives
3. Human or Individual Objectives

1. Economic Objectives:
Business is an economic activity and its objectives are mainly economic in nature.

The main economic objectives are:

(i) Profit Earning – Every entrepreneur undertakes business activities primarily to earn
profits. No business can survive for long without earning sufficient profits. A business needs
profits not only for its existence but also for expansion and diversification.

Profits provide a means of livelihood for the entrepreneur and a reward for bearing the risk.

(ii) Survival – Every business aims to ensure that it continues to survive and exist in the
future. Survival is possible only when organization is able to earn enough revenue to cover its
costs.

(iii) Growth – A business needs to add to its prospects in the long run. For this, the business
must grow and expand to survive in the long run.

Growth of a business indicates how well it is able to exploit its potential opportunities.
Growth is measured in terms of sales volume, increase in number of employees, market share,
number of products, etc.

Other Economic Objectives of Business:

(i) Creation of Customers – Creation of customers or demand is essential in order to earn

profits. Customers are the focus of all business activities. A business enterprise can exist and
grow only when it is able to capture a big market share, i.e. there are enough people to buy the
products and services offered by an enterprise.

(ii) Innovation – Innovation refers to introduction of new ideas or new methods of

production. Innovation plays a crucial role in increasing the competitive strength and
improving the image of business enterprise in the mind of customers.

(iii) Optimum Utilization of Resources – Resources available with the business are
generally limited. So, every business enterprise aims to make best possible use of physical,
financial and human resources. This objective can be achieved through – (a) Employing
efficient and competent work force; (b) Making full use of installed machinery; (c)
Minimizing wastage of materials.

2. Social Objectives:
Social objectives refer to the objectives, which are desired to be achieved for the benefit of the
society. Business makes use of scarce resources of the society. So, society expects something
in return for its welfare. Social objective deals with fulfilling obligations towards the society.

Some of the major social objectives are:

(i) Supply of Quality products at Fair Prices – The business should ensure that there is a
regular supply of useful products with fair quality and at reasonable prices. Supply of
adulterated goods, inferior quality goods, unusable or harmful products are detrimental to the
survival of business. It must be noted that customer is now more educated and quality
conscious and expects value for his money spent.
(ii) Avoidance of Unfair Trade Practices – Business enterprise should not indulge in anti-
social and unfair trade practices like black marketing, hoarding, adulteration, etc. Such
practices are not only illegal but also hamper the image of business community. So, every
business organization should aim to avoid such undesirable activities.

(iii) Generation of Employment Opportunities – Every business enterprise should create

sufficient employment opportunities without any discrimination as to caste, religion, sex, etc.

In India, unemployment is a serious problem and the business community can play a dominant
role in solving this problem.

(iv) Protection of Environment – Business enterprise should take all reasonable steps to
check and protect environment. It must make proper arrangement for disposal of effluents,
smoke, wastes, etc. in order to avoid various types of pollution.

(v) Community Service – Many business organizations engage in various community

services, like setting up schools, charitable dispensaries, donating money for social and
religious activities, etc. Fulfillment of this objective helps to improve the reputation and
public image of business.

(vi) Welfare of Employees – No business can succeed without the contribution of its
employees. Thus, business should aim to provide fair wages and reasonable working and
living conditions to workers.

3. Human or Individual Objectives:

Human or individual objectives refer to the objectives related to the individual needs of the
employees of an organization. As employees are one of the most valuable resources for an
organization, satisfaction of their objectives is very important.

Individual objectives include the following objectives:

(i) To provide healthy and safe working conditions.

(ii) To pay fair and competitive salaries and perks.
(iii) To provide opportunities for personal growth and development of employees.
(iv) To provide reasonable security of service.
(v) To provide various financial and non-financial incentives in order to motivate the workers.
(vi) To encourage employees to take initiative and participation in management.

Multiple Objectives of Business:

In this competitive world, management of a business must set’ Multiple Objectives’ for its
long-term survival and growth. Peter F Drucker has suggested eight key areas, where
objectives of a business enterprise must be set.
They are as follows:

(i) Market Standing:

Market standing refers to the position of an enterprise in relation to its competitors. For
example, position of ‘Airtel’ in relation to ‘Vodafone’. A business enterprise must aim to
increase its market standing by offering good quality products at reasonable prices and serving
them better than competitors.

(ii) Innovation:

In this competitive world, innovations are very important for a business enterprise to flourish.
For example, Videocon introduced LED TV with inbuilt DTH facility. There are two kinds of
innovation in every business – (a) Innovation in product or service; and (b) Innovation in
various skills and activities needed to supply them.

(iii) Productivity:

Productivity is calculated by comparing the value of outputs with the value of inputs. It is
used as a measure of efficiency. Every business enterprise must aim to achieve greater
productivity through best possible use of available resources.

(iv) Physical and Financial Resources:

All business enterprises require physical resources (like plant, machinery, etc.) and financial
resources (i.e. funds) in order to produce and supply goods and services to its customers.
Every business enterprise must aim to acquire these resources according to its requirements
and must use them efficiently.

(v) Earning Profits:

Earning profits on the capital employed is the main objective of every business enterprise.
Every business aims to earn a reasonable profit in order to survive and grow in this competing
world.

(vi) Manager Performance and Development:

All business enterprises need managers to conduct and coordinate business activity. So, every
business enterprise must actively work for development of manager’s performance. Therefore,
manager performance and development is an important objective.

(vii) Worker Performance and Attitude:

Worker’s performance and attitudes directly influence the productivity and profitability of
every enterprise. So, every business enterprise must aim to improve performance of the
workers and to develop positive attitude among them.
(viii) Social Responsibility:

Every business is a part of society as it makes use of scarce resources of the society. So, it
must meet the expectations of the society. Social responsibility refers to the obligation of
business firms to contribute resources for solving social problems and work in a socially
desirable manner.
Objectives of Business

Every human activity has some objective or objectives, and business, as one of the important
human activities, must have objectives.

There is a common belief that money making is the objective of business. Maximization of
profits is the prevailing norm among businessmen themselves. Money-chasing to them seems
to be the primary economic objective of business. So a company must earn profit if it is to
continue to exist. It is necessary to make earnings if additional capital is to be attracted and
reserves are to be built up for meeting risk inherent in business activity.

But to say that the sole purpose of any business is to make profit is like saying that eating is
the sole purpose of living, or that blood circulation is of supreme importance for human
survival and breathing, digestion, or proper functioning of the nervous system count for
nothing.

Obviously, a company must make profit for survival, but for survival it is also necessary that
it produces goods or renders services that customers want. Its conditions of employment must
be so good as to attract competent employees, and it should be an acceptable firm to the
community in which it operates. Remove any of these essentials and the enterprise collapses.
It is therefore important to recognize the fact that profit is the legitimate reward for honest
endeavor, something the entrepreneur gets for rending service to the community.

Viewed in this light, profit plays a vital role as a measure of efficiency, and must be watched
constantly. After all, profits provide not only the most accurate test of business efficiency, but
also a sure check against failure. Over a course of time, profits are the measures of how well a
company has met the needs of labour, consumers, shareholders, and the general public.

Besides economic objectives, a business has social objectives. In fact, the two objectives are
intimately related. The primary objective of business therefore should be satisfaction of
human wants through supply of quality goods at reasonable prices. Another objective is to
provide a fair return to the investor and to have sufficient amount to cover future risks and to
ensure future expansion. The third objective is to ‘create customers’ and meet their needs and
wants, and also provide fair wages to the workers.

Suffice it to state here that business lies economic as well as social objectives. Its economic
objectives relate to earning a satisfactory profit, creating customers and making innovation. Its
social objectives comprise supply of quality goods in sufficient quantity at reasonable prices,
fair deal to workers, fair returns to investors, and fair dealings with suppliers of materials.
To sum up, “business” may be said to be any enterprise which makes, distributes, or provides
any article or service which other members of the community need. And business transactions
are essentially measured in terms of money. These measurements must show profit to the
enterprise, if it is to remain in business. But money and profit are measuring devices; yet a
measuring device is not a purpose.

To realize a profit may be, and usually, is the motive or purpose of some of the individuals
who engage in business. But “the only valid definition of business purpose is to create a
customer”, that is, to provide goods or services which someone needs.

Objectives of Business – Economic, Social and Other Objectives of Business

As business seeks to create a balance between different needs and goals of different interest
groups, like consumers, employees, society at large etc. it needs multiple objectives.

1. Economic Objectives:
The various economic objectives of business are described below:

i. Market Standing:

Market standing refers to the position of a business in context of its competitors. Every
business enterprise must aim at securing a stronger standing in terms of offering competitive
products to its customers and serving them to their satisfaction.

ii. Innovation:

Innovation is important as no business enterprise can flourish in a competitive world without

innovation.

The innovation in business can be incorporated in many ways like:

a. Product innovation – The usability of a product may be enhanced by adding new features to
it or modifying its packaging.

b. Production innovation – The technique of production may be improved with the help of
better technology.

c. Distribution innovation – A business may explore new channels of distribution to enhance

the marketability of its products.

iii. Productivity:

The productivity of a business is measured in terms of ratio between the inputs and outputs.
Higher productivity indicates higher efficiency of the business. The productivity of a business
should be high in order to ensure continuous survival and growth.
iv. Physical and Financial Resources:

Every business needs varied kinds of resources be it human physical or financial in order to
carry out its activities. A business must obtain and utilised these resources efficiently.

v. Earning Profit:

Earning profit is one of the prime objectives of business. In the absence of profit a business
may cease to exist over period of time. Thus, profit is must for every business in order to
ensure its survival and growth.

2. Social Objectives:
The various social objectives of business are described below:

i. Supply of desired quality of goods and services – A businessman must offer the product and
services in accordance with the needs and wants of the prospective buyers and at fair prices.

ii. Generating employment opportunities – It is essential for a business to generate

employment opportunities so as to raise standard of living of people and foster economic
development of the country.

iii. Community service activities – A business must be involved in different types of

community services for the good of the society at large.

iv. Employee welfare – It is the prime responsibility of every business to take care of its
employees. It must provide fair wages/salary, good working conditions, and prospects for
growth etc. for them.

v. Protection of environment – A business should carry out its activities by adopting

environmental friendly techniques in order to ensure conservation of natural resources and
protection of environment.

3. Other Objectives:
The various other important objectives of business are described below:

i. Manager performance and development – The success of a business primarily depends upon
the competence of its human resource. Therefore, the enterprises must actively work for this
purpose by conducting motivational programmes for managers.

ii. Worker performance and attitude – The enterprises must ensure a positive attitude on the
part of workers in order to enhance their contribution towards productivity and profitability of
the enterprise.
Objectives of Business – Economic, Human, Organic, Micro Level and
National Level Objectives

The objectives decide, “Where we want to go?” “What we want to achieve?” “What is our
goal or destination?” To a layman an objective is an aim or goal. Objectives of any business
enterprise have a great impact on the organization and its working. All the time they guide the
business concern on the path to destination. Entire business activities are directed, aimed and
motivated towards the objectives or common ends.

Of course these objectives must be preplanned, predetermined, must be in written form and
must be actual and feasible, and can be measurable in performance. The business objectives
are multiple. These objectives can be classified in different categories like Primary and
Secondary objectives. General and Specific objectives, long terms and short term objectives.
Whatever, may be the classification of objectives, all these must be related to or oriented for
the survival and growth of the business enterprise.

Objectives are needed in every area, where performance and results directly and vitally affect
the survival and prosperity of business. It is the moral responsibility of top management to
identify and specify the aims and objectives for their business enterprise. Management by
objectives is an integral part of planning also.

Although, the profit motive constitutes the primary motive for business activities, but it is not
the sole objective of it. Business enterprises have a number of objectives like economic,
human, organic and social. A business enterprise is now considered not only as an economic
institution but also as a social institution and a living member of the society. Therefore it has
both the objectives, economic as well as social. Because of this, a business enterprise can
fulfill its twin mission in the environment in order to enjoy stable and continuous life.

Classification of Business Objectives:

1. Economic Objectives:

i. Yielding an adequate return on investment in the form of profits.

ii. Creating customers and capturing more markets for the products of the business.

iii. Introducing innovative ideas in technology, methods and procedure of work, in products or
services etc.

iv. Ensuring adequate income or returns to the factors of production and its prompt payment.

v. Generating new employment opportunities through growth and expansion.

vi. Providing ample scope for growth, expansion, diversification etc.

2. Human Objectives:
i. Treating employees as human beings and partners in the business.

ii. Developing and improving new skills and abilities among the employees.

iii. Creating, developing and preserving a sense of commitment among the employees by their
participation in management (in decision making process).

iv. Ensuring job satisfaction by making it more interesting and challenging.

v. Ensuring adequate, satisfactory wages, salaries and other non-economic amenities and
benefits.

vi. Ensuring consumers satisfaction in terms of fair treatment like courtesy, understanding,
honesty, no adulteration and no black marketing etc. Not resorting to malpractices.

vii. Maintaining satisfied work force with high morals.

viii. Motivating the employees continuously for higher efficiency.

3. Organic Objectives:

i. Adopting the policy of ploughing back of profit for strengthening the business and self-
reliance in capital raising.

ii. Implementing the schemes of growth and expansion so that the business can prosper day-
by-day.

iii. Carrying the activities of research and development for innovation in business. Innovative
ideas must be implemented.

iv. Attaining the ample size (Optimum size) of business operations for its prosperity.

v. Enhancing the goodwill, reputation and image of the business organisation.

4. Micro Level Objects:

i. Providing facilities for the spread of literacy, education, training etc.

ii. Improving standard of living by providing quality goods and services.

iii. Taking precaution to avoid environment pollution.

iv. Providing economic or non-economic help to religious, cultural, charitable, institutions for
betterment of community at large.
v. Providing all types of help to backward and remote regions by establishing industrial units
in these areas.

vi. Helping in maintaining a regional balance in industrial development.

5. National Level Objectives:

i. Performing the business activities within the frame work of national priorities.

ii. Strengthening the national economy by giving their adequate contribution.

iii. Entering into new areas of production and distribution according to national priorities.

iv. Improving import substitution.

v. Promoting export in variety of products.

vi. Achieving self-sufficiency and self-reliance.

vii. Encouraging small scale business units and providing all facilities for their development.

viii. Ensuring the community at large for productive investment.

Objectives of Business – 4 Important Objectives: Economic, Human,

Organic and Social Objectives

A business is an organization of human, material and other intangible resources. It is

established to offer satisfaction to its customers, owners, creditors, suppliers, employees,
managers, shareholders. The main activity of business is to create, retain and satisfy profitable
customers as a means of successfully achieving the desired aims of the enterprise. Business
success is synonymous to marketing success. All business objectives need to be properly
balanced, coordinated and integrated.

The objectives of business must be laid down keeping in view prevailing environment. These
objectives of a business are multidimensional in nature. Every business enterprise has to
prepare a list of economic, human, organic and social objectives, which must be clear-cut and
specific.

1. Economic Objectives:

Essentially a business is an economic activity.

These objectives focus on three important constituents of the business system:

i. The owner.
ii. The employees.

iii. The customers.

The owner i.e. the shareholders must get safety for their investments in business enterprise as
well as adequate, regular and assured return on investment must be given to them.

In case of employees, job security, adequate and fair wages/salaries, allowances, incentives,
bonus, welfare facilities etc. must be given to them. Employees are live asset of an
organisation. On their, hard, devoted contribution only, business organisation can survive.
Business enterprises must try to maintain their high morale. Continuous motivation is
necessary for better and greater productivity or for efficiency.

Customer is the king of market. The entire business activities are customer oriented. They
produce goods and services which are needed by customers. Satisfaction of the needs of
customers in one of the important objectives of the business. Providing quality goods and
services at reasonable prices is the aim of business.

Creating a large number of customers by capturing more and more markets is another
objective of business along with stopping all types of adulteration, black marketing, artificial
scarcity of goods, malpractices, fraudulent activities, cheating the customer etc. another
objective of business which is the basic one, is earning reasonable profits from business
activities. All these are covered under economic objectives of business.

2. Human Objectives:

Human objectives are connected with employees and customers. Employees must be treated
as human beings and not merely as a factor of production. They must be treated not as
employees but as business partners. Business profit must be shared with them. They must be
made to participate in decision making process, called as worker’s participation in
management.

Business enterprise has to arrange training programmes for the development of their
knowledge, skill, capabilities i.e. abilities etc. for the better performance and efficiency. Their
jobs must be secure, full job satisfaction should be given, and continuous motivation must be
provided to keep their morale high. Making them committed and responsible employees of the
organisation is another human objective of business enterprise. Customer is the center point of
business enterprise.

Business has to take care of well-being of customers by providing needed goods and services,
qualitative but at reasonable prices. Prompt redressal of their complaints is the primary
expectation of customers. Proper care of the customer, at least for their complaints is a must
for any business.

3. Organic Objectives:
Organic objectives are framed from business point of view. Its growth, development,
expansion, stability, progress all these objectives are taken into consideration Ploughing back
of profit is the renowned source for raising the capital needed by business where business
enterprise does not want to depend on outsiders. It is also called as self-financing or financing
from internal sources.

Under this concept capital is generated from profits of the business enterprises. Achieving the
optimum size of business is another objective. Facing the competition and surviving for
longer time etc. are covered under this category of objectives.

4. Social Objectives:

These objectives are classified into two categories; namely Micro Level and Macro Level.
Under micro level business is expected to help in the spread of literacy, education, training,
medical, and care, and public health, control of air and water pollution.

Under macro level, business has objectives like improving the import substitution, promoting
more export developing small scale business units, industries as well as entering into area of
production. Distribution of goods and services which have been given national importance
and priorities.

Objectives of Business – Organic Objectives: Prestige and Recognition,

Growth and Survival
The business is an economic institution operating in a socio-economic system. Therefore,
objectives of business should be defined keeping in view its prevailing environment and its
needs for survival and growth. Like any other institution business has several rather than a
single objective. Objectives of business are multi-dimensional in nature. Business is
established and it exists to achieve multiple objectives.

People enter into business and stay in business because they want to earn money, social power
and prestige, joy of achievement and other goals. Generally, profit motive is considered to be
the primary objective of business. But profit-making is not the sole or only objectives of a
business. Every business enterprise has to lay down its multiple objectives to justify its
existence.

Organic Objectives:
As an organic entity, a business enterprise has its own stages of infancy, childhood,
adolescence, adulthood and maturity. Like a human being, the first concern of a business
enterprise is to ensure its survival. When the enterprise is assured of its survival, it will aim at
growth and expansion.

To accomplish this objective, it will attempt to win prestige, recognition and goodwill from
the society in which it operates. In order to pass through these stages in time and with
strength, a business unit uses several methods, e.g., ploughing back a part of its profits,
attaining optimum size to avail of the economics of scale, etc.
Organic objectives are the foundation for achieving all other objectives of business:

(a) Prestige and Recognition:

Prestige and recognition help to ensure the survival and growth of a firm. A business
enterprise with good image or goodwill can easily attract customers, investors and competent
employees.

(b) Growth:

Growth and diversification is one of the major objectives of business. Growth may be
measured in terms of size, investment, market share, etc. Market share which a business
enterprise commands reflects its standing in the market. A business enterprise may identify
new customers, new products or new markets or increase its market share in the present
market.

(c) Survival:

First of all a business enterprise tries to maintain its existence. Survival of stability objectives
implies the maintenance of a firm’s competitive position or earning capacity or market
standing. Unless an enterprise survives no other objectives can be accomplished.

Objectives of Business – Economic and Social Objectives

Business objectives are something, which a business organization wants to achieve or

accomplish over a specified period of time.

Thus, the objectives of business may be classified as:

(i) Economic Objectives:

Economic objectives of a business refer to the objective of earning profit and those which
have a direct impact on the profit earning objective of business.

The objectives can be summarized as under:

(a) Earning of adequate profits.

(b) Exporting new markets and creation of more customers.

(c) Growth and expansion of business operation.

(d) Making use of available resources in the best possible manner.

(ii) Social Objectives:

These objectives are those, which are desired to be achieved for the benefit of society.

Some of these are:

(a)Production and supply of quality goods and services to the society.

(b)Taking steps in the direction of consumer education.

(c) Conserving natural resources and wild life and protecting the environment.

(d) Contributing towards the general welfare and upliftment of the society.

(e) Avoidance of unfair practices like hoardings, black-marketing, over-charging etc.

Objectives of Business

1. Economic objectives of business:

The objectives are as follows:

(i) Earning of adequate profits.

(ii) Creating new customers and entered the area of the market.

2. Social objectives of business:

The objectives are as follows:

(i) Making goods available at reasonable prices.

(ii) Ensuring fair return to the investors.

3. Human objectives of business:

The objectives are as follows:

(i) Providing fair remuneration and incentives to employees.

(ii) Providing the employees with more and more promotional opportunities.

4. Global objectives of business:

The objectives are as follows:

(i) Making available globally competitive goods and services.

(ii) Reducing disparities among rich and poor nations by expanding its operations.
 CONCEPTS OF STRATEGIC PLANNING

Definition of Strategic Planning

 Whilst there are a burst of definition of Strategic Planning, they all contain certain
elements
Study of the functions and responsibilities of general management
The success of the total enterprise
It is in the long run (this element is concerning)

Other Strategic Planning Definitions

Goals
Corporate Objectives- are those targets which are set to determine the desired future
direction for the company as a whole.
Strategy
Corporate or Business Strategy is the means of achieving the business objectives (how do
we achieve the objectives is a strategy)
Structure
Corporate Structure – is the organizational form required to achieve a given strategy.

Theoretically, always structure must follow a strategy.

Strategic Planning
Corporate Planning is the process of systematically reviewing the long term future of the
company and would contribute to the formulation of corporate objectives and
determination of corporate strategy and structure.

What is Strategic Planning?

It is concerned with changes taking place at the interface between the company and its
environment.
 In order to adapt successfully to such changes, the two key factors which needed to be
continually monitored are products and markets.

ANSOFF MODEL
Product
New Development Diversification
Products/
Services Market Market
Exist Penetration Development

Exist New
Markets (Customers)

Existing Products: Market Penetration

1. Price
2. Promotion
3. Place
4. Product
These are the 4P’s of Marketing also called the marketing mix

Existing product but new market- Product Development

1. Demographics
2. Geographic location
3. Psychographics- getting in to the people’s heads (the branding)
These are called Market Segmentations

Due to the divorce of ownership and control, systematic approach was thought to be able
to produce above average performance than a random approach.
The systematic approach became known as strategic planning, long range planning,
corporate strategy, etc. although in many firms the title is a misnomer.

Strategic Planning Decision Model

The Control Framework

In that strategic planning is concerned with decisions about the long term future of the
business the steps in the process are the same as for any decisions.
 The model goes through the stages of the decisions making process.
 The model follows the Control Framework, as follows:
 Perception of the Problem
 Appraisal: (SWOT Analysis, Gap Analysis)
 Choice
 Implementation
  Evaluation
 Feedback

Objectives

Alternatives

Feedback
Choice

Implementation

Results

Objectives- Long term objectives such EPS, Price growth, market share, market growth and even
environmental objectives

Alternatives/ Analysis – Ansoff model, SWOT, GAP, CVP

Choice – Budget Plan
Implementation – Predictive Model
Customers, Competitors, Government Regulations affects implementation
Feedback – Variance Analysis
 External- Opportunities and Threats
Internal- Strength and Weaknesses

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to

evaluate a company's competitive position and to develop strategic planning. SWOT analysis
assesses internal and external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the

strengths and weaknesses of an organization, initiatives, or within its industry. The
organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray
areas and instead focusing on real-life contexts. Companies should use it as a guide and not
necessarily as a prescription.

A Visual Overview

Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to
an element of SWOT. This visual arrangement provides a quick overview of the company’s
position. Although all the points under a particular heading may not be of equal importance, they
all should represent key insights into the balance of opportunities and threats, advantages and
disadvantages, and so forth.

SWOT Analysis was first used to analyze businesses. Now it's often used by governments,
nonprofits, and individuals, including investors and entrepreneurs.

Strengths
Strengths describe what an organization excels at and what separates it from the competition: a
strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For
example, a hedge fund may have developed a proprietary trading strategy that returns market-
beating results. It must then decide how to use those results to attract new investors.

Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where the
business needs to improve to remain competitive: a weak brand, higher-than-average turnover,
high levels of debt, an inadequate supply chain, or lack of capital.

Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive
advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a
new market, increasing sales and market share.

Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought is
a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other
common threats include things like rising costs for materials, increasing competition, tight labor
supply and so on.

SWOT Table
Strengths Weaknesses
1. What is our competitive advantage? 1. Where can we improve?
2. What resources do we have? 2. What products are underperforming?
3. What products are performing well? 3. Where are we lacking resources?
Threats
Opportunities
1. What new regulations threaten
1. What technology can we use to improve
operations?
operations?
2. What do our competitors do well?
2. Can we expand our core operations?
3. What consumer trends threaten
3. What new market segments can we explore?
business?

GAP ANALYSIS

What Is a Gap Analysis?

A gap analysis is the process companies use to compare their current performance with their
desired, expected performance. This analysis is used to determine whether a company is meeting
expectations and using its resources effectively.

A gap analysis is the means by which a company can recognize its current state—by measuring
time, money, and labor—and compare it to its target state. By defining and analyzing these gaps,
the management team can create an action plan to move the organization forward and fill in the
performance gaps.

Understanding a Gap Analysis

When organizations aren't making the best use of their resources, capital, and technology, they
may not be able to reach their full potential. This is where a gap analysis can help.

A gap analysis, which is also referred to as a needs analysis, is important for any type of
organizational performance. It allows companies to determine where they are today and where
they want to be in the future. Companies can reexamine their goals through a gap analysis to
figure out whether they are on the right track to accomplishing them.

Gap analyses were widely used in the 1980s, typically in tandem with duration analyses. A gap
analysis is considered harder to use and less widely implemented than duration analysis, but it
can still be used to assess exposure to a variety of term structure movements.

There are four steps in a gap analysis, ending in a compilation report that identifies areas of
improvement and outlines an action plan to achieve increased company performance.
The "gap" in a gap analysis is the space between where an organization is and where it wants to
be in the future.

The Four Steps of a Gap Analysis

The four steps of a gap analysis are the construction of organizational goals, benchmarking the
current state, analyzing the gap data, and compiling a gap report.

Step One: The first step is to accurately outline and define the organizational goals or targets, all
of which need to be specific, measurable, attainable, realistic, and timely.
Step Two: In the second step, historical data is used to measure the current performance of the
organization as it relates to its outlined goals.
Step Three: The third step is to analyze collected data that seeks to understand why the measured
performance is below the desired levels.
Step Four: The fourth and final step is to compile a report based on the quantitative data
collected and the qualitative reasons why the data is below the benchmark. The action items that
are needed to achieve the organization's goals are identified in the report.

Where Gap Analysis Is Used

Gap analysis can be used by organizations of varying degrees, from large corporations to small
businesses. There is no limit to which areas can benefit from using this strategy; these areas
include the following:

Sales
Quality control
Financial performance
Human resources
Employee satisfaction

What Strategic Planning Is Not

 Strategic planning is not a blue print for the future.
 It is impossible to forecast the future precisely and future ahead,
the more difficult it becomes
 Flexibility must be an important part of any plan
 The value of planning lies in the process.
 Strategic planning is not long term financial forecasting, or forecasting of any
nature. However, forecasting is an essential part of Strategic Planning.
 Strategic planning is not an aggregation of functional plans. It is the process of
altering the direction of the firm over a period of time.
 Strategic planning is not making future decisions, it is concerned with making
current decisions about future activities.
 Strategic Planning is not an attempt to eliminate risk, it is to enable the manager
to understand the nature of the risk.
 Levels of Strategic Planning

Corporate strategy vs Business strategy vs Functional strategy – how are they different?

Very often people talk about different types of strategies referring to strategies that relate only to
a particular part of an organization. Often, there is a confusion when talking about corporate
strategy vs business strategy vs functional strategy. Let us clarify the differences.

Typically, there are three different levels of strategies to distinguish between:

1. Corporate strategy
2. Business strategy (also called business level strategy), and
3. Functional Strategy

The focus of the corporate strategy is on the entire organization. It determines the path to create
value both for shareholders and clients/customers. The strategy spans across the entire portfolio
of businesses owned by the company and functions that enable and empower these businesses.

1. How we add value to shareholders / increase enterprise value?

2. What are the key businesses we want to be in?
3. What are internal (for our company) and external (for our customers/clients) synergies
between our businesses?

Business strategy (or business level strategy or business unit strategy) determines the path
forward for a particular business and customers/clients it is focusing on. Such aspects as
profitability, sustainability, product/service offering, pricing, customer/client segmentation are
focal topics of a business strategy.
1. What are the services and products we want to provide our customers/clients?
2. In what geographies/market segments we want to play?
 3. How can we drive profitability why delivering better products/services?

Functional strategy deals with a path forward for a particular organization function (e.g. HR,
Contact Centre, Digital, Technology/IT) in the context of the entire organization (i.e. how this
function adds value to the rest of the organization). Such as aspects as services offered, internal
pricing, enabling capabilities, quality of services are in the focus of a functional strategy

1. How can we best enable both internal and external clients?

2. How can we deliver the best quality of services in an efficient way?
3. How can we help create synergies and apply best-practices serving various parts of the
organization?

Porsche’s corporate strategy example

While one of the most renowned auto manufacturers in the world, in the early 1990s Porsche
found itself on the brink of bankruptcy due to inefficient production methods that focused on
engineering and design above consumer needs. The German auto manufacturer’s newly
appointed CEO Wendelin Wiedeking remade the company by employing a strategy focused on
Japanese manufacturing concepts to improve efficiency and launching new products to increase
market appeal.

Vehicles like the 911 (midsize premium sport vehicle), Boxster (compact, premium sport
vehicle), and Cayman (premium sport coupe) targeted a very specific upscale market, allowing
the company to focus its brand and value proposition on this segment of consumers.
Additionally, the company introduced new products like the Cayenne (one of the first luxury
sport SUVs) targeting wealthy consumers in the market for a luxurious four-door sport vehicle.

This carefully designed and brilliantly executed strategy resulted in highest profit margins across
the industry (~15%), comparatively other players found themselves far behind in terms of
profitability (2016 numbers) e.g. Mercedes (~7%) or Hyundai (~4%)

It is interesting to know that Porsche’s profitability is by far higher than that of its parent
company, Volkswagen.

The State of Strategic Thinking

Thinking is Strategy
Key point: Strategic Planning is an integral part of Strategic Management, i.e no longer
an added managerial duty- but instead a way of thinking about a business and how to run
it.
 Elements of a Good Strategic Plan
Analyze the industry in which the firm competes
Be aware of sources of competitive advantage
 Lower Cost (Cost Leadership)
 Differentiation relative to competitors (Product Differentiation)
Analyze the existing and potential competitors
Assess the companies, “ Competitive Position”
Choose a strategy built on competitive advantage and how it can be sustained
Translate the chosen strategy into concrete actions

Two Views of Strategy

External to Internal View (Porter’s Five Forces)
 External Environment
 Industry Structure
 Competitive Advantage
 Strategic Positioning
 Implementation
Internal to External
 Based on Capabilities
 Resource based view of the firm
 Organizations reflect on the past (of their firms)
STRATEGY

Entering into a business or business deal blind is a gamble. Building specific business
strategies is an absolute necessity to increase the odds of success. And the importance of
business strategy quickly becomes apparent, and strategies come in various styles. Many
business owners will seek or hire outside consultants to assist with forming and carrying out
strategies.

Ultimately, a sound strategy or set of strategies that constantly evolve and improve is a path to
a better business. Without strategy, the business depends on blind luck.

The Importance of Strategy

Strategy answers the questions about a business. How will it run? What is the market? How
does the business compete against similar businesses? What is the profit model and profit
potential? How much inventory and how many employees are needed to perform daily
functions?

The list of questions is a long one. And, ultimately, the answers to those questions are used to
form a good business strategy. The two key elements behind any business are the major goals
and the strategy to reach those goals. The third part is the execution to make it all happen.

Without the strategy, a path to achieving goals is not clearly defined, and the business will hit
roadblocks without any immediate solutions to move forward.

Big Picture Role of Strategy

The overarching strategy is essentially the business structure and core functions. Business
owners and managers build departments to handle specific tasks and setup processes to
execute the core operating functions. This strategy runs the business on a daily basis. It’s the
way in which products or services are built or sold while maintaining operational objectives.
After the big picture strategy built, specific strategies are developed around each department
and task. How can the product improve? Where can we penetrate new markets? Questions of
this nature are constantly developing and contributing to a refined set of strategies.

Specific Strategies

A few specific and common good business strategies are hiring, marketing and sales. Other
aspects of the business are often stabilized after the initial structural strategy is achieved.
Hiring, marketing and sales however are always evolving and they contribute to productivity
and bottom line profitability.

A hiring strategy is critical for reducing turnover and finding quality to produce productive
employees. Building robust job descriptions clearly states your desires and filtering through
employees to find the best hires is intensive. Good help is hard to find as some business
owners say.

Marketing strategy is used to build and define your brand through strategic messaging.
Marketing will ultimately create the business motto, logos and messages that are used in
advertising and sales collateral.

The sales strategies differ from marketing because they are directly responsible for
generating revenue. Sales functions on goals and strategies for inbound and outbound
processes. How will the business reach potential customers and bring them to the business?
How will the business go out and find the customers to make sales directly? These two
questions are common starting points for building the sales process.

The company can then build scripts for cold calling, train inside sales teams to receive and
convert customers and create outbound sales processes to get in front of customers and win
their business. It’s a competitive world and a well thought out strategy is critical for both
marketing and sales.

Pricing Strategies
Even though the concept of pricing strategy sounds easy, it is actually quite complex. Many
businesses have a set it and forget it mentality, but those who test and price products based on
their market, can better maximize sales and revenue.

In some cases, that means pricing above the median market to distinguish the brand. In others,
it means acquiring inventory in bulk and pricing below the market on a tighter margin to drive
more sales. Pricing is tightly associated with the brand and how that brand is portrayed and
received by the consumer.

What Is a Strategic Business Model?

The expression "strategic business model" simply means your company emphasizes strategic
planning in starting and developing operations. It is important for small business owners to
develop business strategies that outline how they intend to achieve goals. For many
companies, strategic management involves formulating a plan to generate profit.

Strategy Steps

A first key step in a strategic business model is determining your value proposition. Top
quality, low prices and elite service are common factors of an effective value proposition.
Segmenting your marketplace to identify the best customers for your business is a key
marketing strategy. Analyzing competitors to focus on key competitive strengths and
assessing ways to minimize costs are other strategic business considerations.