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Q.1 Explain how strategies are formulated and implemented.

(10 marks)

Strategy Formulation and Implementation

It is the crux of the strategic management process. Strategy refers to the course of
action desired to achieve the objectives of the enterprise. Formulation, together
with its implementation, constitutes an integral part of the management activity.
Managers use strategies for different purposes such as to overcome competition, to
increase sales, to increase production, to motivate the employees to provide their
best, and so on. Implementation of a strategy is a crucial task as the formulation of
it. There may be a lot of resistance during the implementation process. It is
necessary for the manager to be very tactful to involve the members of his group in
the formulation of strategy to facilitate the implementation process.

Stages in Strategy Formulation and Implementation

a. Identification of mission and objectives

b. Environment scanning
c. Generic strategy alternatives
d. Strategy variations
e. Strategic choice
f. Allocation of resources and formulation of organisational structure
g. Formulation of plans, policies, programmes and administration
h. Evaluation and control

Generic Strategy Alternatives

They refer to the strategy alternatives in broader terms. After the nature of the
business of the firm is defined, the next task is to focus on the type of strategic
alternative, in general, the firm should pursue. The strategist seeks to identify the
right alternative through questions such as:

1. Should we get out of this business entirely?

2. Should we try to expand?

There are four strategy alternatives available to a firm or business:

a. To expand
b. To wind up or retrench
c. To stabilize, and
d. To continue its operations pertaining to its products, markets or functions.

a) Expansion strategy can be adopted in the case of highly competitive and volatile
industries, particularly, if they are in the introduction stage of product / service life

b) Stability strategy is a better choice when the firm is doing well, the environment
is relatively less volatile, and the product / service has reached the stability or
maturity stage of the life cycle.

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c) Retrenchment strategy is the obvious choice when the firm is not doing well in
terms of sales and revenue and finds greater returns elsewhere, or the product /
service is in the finishing stage of the product life cycle.

d) Combination strategy is not a new strategy as it combines the other strategies.

However, it is to be noted that it is better to evolve individual strategies and
combine them rather than trying to evolve a complex combination strategy which
could be cumbersome with loss of precious business time. It is best-suited to
multiple SBU firms in times of economic transition and also when changes occur in
the product / service life cycle. If a firm realises that some of its main product lines
have outlived their lives, it may not be profitable to continue investment in the
same product or SBU. The firm may choose to withdraw its resources from this area
(or SBU) (Retrenchment strategy) and follow an Expansion strategy in a new
product area. Combination strategy is best suited when the firm finds that its
product-wise performance is uneven, or all or most of its products differ in their
future potential.

Sometimes, a combination of a few or all of these strategies may be necessary. Any

change must be contemplated considering what is to be done (Business definition)
and the speed (Pace) with which it is to be done. Each of these alternatives has to
be evaluated on its merits.

A strategy is a means to an end. If an organisation wants to perform better in the

long run, it has to select an appropriate strategy and pursue it vigorously. In this
process, it might face certain hardships. Also, it has to make necessary changes in
its strategy. A change in strategy should not be construed as a sign of failure.

Strategic Alliances

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Strategic alliances constitute another viable alternative. Companies can develop
alliances with the members of the strategic group and perform more effectively.
These alliances may take any of the following forms:

a) Product and/or service alliance: Two or more companies may get together to
synergise their operations, seeking alliance for their products and/or services. The
product or service alliance may take any of the following forms:

A manufacturing company may grant license to another company to produce its

products. The necessary market and product support, including technical know-how,
is provided as part of the alliance. Coca-cola initially provided such support to
Thums Up.

Two companies may jointly market their products which are complementary in
nature. Chocolate companies more often tie up with toy companies. TV Channels
tie-up with Cricket boards to telecast entire series of cricket matches live.

Two companies, who come together in such an alliance, may produce a new product
altogether. Sony Music created a retail corner for itself in the ice-cream parlours of

b) Promotional alliance: Two or more companies may come together to promote

their products and services. A company may agree to carry out a promotion
campaign during a given period for the products and/or services of another
company. The Cricket Board may permit Coke’s products to be displayed during the
cricket matches for a period of one year.

c) Logistic alliance: Here the focus is on developing or extending logistics support.

One company extends logistics support for another company’s products and
services. For example, the outlets of Pizza Hut, Kolkata entered into a logistic
alliance with TDK Logistics Ltd., Hyderabad, to outsource the requirements of these
outlets from more than 30 vendors all over India – for instance, meat and eggs
from Hyderabad etc.

d) Pricing collaborations: Companies may join together for special pricing

collaborations. It is customary to find that hardware and software companies in
information technology sector offer each other price discounts. Companies should
be very careful in selecting strategic partners. The strategy should be to select such
a partner who has complementary strengths and who can offset the present
weaknesses. The acid test of an alliance is greater sales at lesser cost. It is a
common practice to develop organisational structures or modify them, if necessary,
to support the alliances and make them successful.

Considering Strategy Variations

There can be a number of variations of the generic strategy alternatives. For

instance, if the strategy is to expand, then the alternatives are internal expansion or
external expansion.

Internal expansion can be achieved through any of the following approaches:

· Penetrate existing markets

· Add new markets
· Add new products, and so on

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Similarly, external expansion can be achieved through mergers or acquisitions. In
most IT Companies, subsidiaries are created to develop at the earliest upstream
capabilities in the IT value-chain. Once these subsidiaries gain the required
capabilities in terms of consultancy, system integration, product design and
application, development and maintenance, and others, they are merged into a
major player. Merger has thus been one of the strategies to benchmark the
company in terms of performance globally.

If the strategy is to attain stability, then the alternatives could be internal stability
or external stability. In some cases, both may be required. External stability can be
attained by maintaining market share.

Internal stability of a firm can be achieved through:

a. Seeking production and marketing efficiencies, and

b. Redefining the existing organisational structure.

Strategy variations can attain the following forms:

· Internal or external
· Related or unrelated
· Horizontal or vertical
· Active or passive

Each of these variations has different strategic alternatives considering the major
goals of the organisation. For instance, internal strategy variation may be
expansion, stability, retrenchment, or combinations. If expansion is decided upon,
the alternatives could be to penetrate existing markets, add new products, or add
new markets, and so on. Strategy variation is a global phenomenon. When the firm
finds that it is not possible to fill a gap in the market with the existing strategy, it
considers a change in the focus of the strategy. An example would be how
multinationals Indianised their global strategies to woo their customers in Indian

Selection of the Best Alternative

The best alternative is one that can improve overall performance. Its selection
depends upon:

· Particular configuration of objectives

· Environmental threat and opportunity profile
· Strategic advantage profile
· The generic strategy itself

If a company has a higher growth as its objective, it is better to expand from a base
of proven or time-tested competence (e.g. cost leadership or market leadership)
and organise the departments to provide new opportunities while taking moderate

Every company must tailor an appropriate strategy for achieving its goals. The most
generic types to initiate strategic thinking, as suggested by Michael Porter, are ( a )
Overall cost leadership, ( b ) Differentiation and ( c ) Focus.

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a) Overall cost leadership – The company is said to achieve OCL when it offers its
products or services at the lowest price ( due to its lowest cost ) among
competitors, thus maintaining the largest market share. Companies which pursue
this strategy have to sharply focus on cost-effective strategies in all the areas
pertaining to engineering, purchases, manufacturing and physical distribution. Any
breakdown could cost the company very badly. A standby arrangement is vital.
Mergers and take-overs reflect the common route for companies to optimise their
resources and costs. HLL emerged stronger with the acquisition of Brook Bond.

b) Differentiation – The company should be capable of demonstrating a superior

performance through its products and services. This should benefit a large number
of customers in saving their resources in terms of time and money. Hero Honda
could design its motorcycle differently to offer higher mileage. This resulted in
savings to the user. The strategy is to differentiate the products and services
sharply through quality in a market dumped with stocks. A photocopying company
can demonstrate its excellence by minimising defects per thousand prints. Constant
adaptation to changing technology and large-scale initiatives in R&D would provide
a shot in the arm for the company. INFOSYS and WIPRO are some examples which
have made a niche in the software industry through differentiation.

c) Focus – The company may concentrate on a narrow market segment and obtain
full market information about it. It may pursue either overall cost leadership or
differentiation strategy within that target segment. Such companies which pursue
the same strategy to the same target market, are called a strategic group of
companies. If they relentlessly pursue their strategies, they are bound to succeed,
leading to benchmarking of strategies. The danger here is that others can copy in
the name of benchmarks. This can be avoided by performing similar activities in an
innovative and swift way, which the competitors cannot catch up with. There are
certain issues which cannot be copied in the short run.

Strategic Choice

It involves the decision to select from among alternatives, the best strategy which
effectively contributes to the business objectives. The spade work before making a
strategic choice consists of:

· Identifying the few viable alternative courses of action.

· Considering the parameters for selection of best alternative.

· Evaluating each alternative on its own merits and in relation to other alternatives.

· Making the final choice.

· Keeping the next best alternative as stand by ( to take care of contingencies )

The following are the questions in terms of which environmental and internal
conditions are analysed:

· What are the main business objectives?

· Does the selected strategy contribute to these objectives?

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· What is the business definition – is it product-based, market-based or function-

· Will it be achieved in the future?

These questions help us to examine the performance gap between the expected and
the ideal outcomes in relation to the alternatives under consideration. If the gap is
narrow or negligible, the stability strategy is the best strategy, since it focuses on “
doing in the best way what we can do “. Most international airlines lease out
operations such as reservation, maintenance, ground halting work, and others to
professional agencies to improve their overall performance in general and increase
the pace of its own activities in particular. The focus will be on better
implementation initiating certain pace changes internally. If the gap is large and
significant, the probable alternatives are either to expand or to withdraw from
unrelated areas. Mergers, acquisitions, disinvestments are some of the measures
that initiate changes in the pace of growth.

The decision-maker considers different choices closest to the present strategy. In

the process, he identifies the most preferred strategy. Some of the parameters that
help him in this process are:

· Is it politically acceptable or not?

· What is the degree of risk involved?

· To what extent is the enterprise dependent on external factors?

Such an evaluation leads to the choice of an appropriate strategy, and at this point,
it appears to the decision-maker that the gap between the expected and the ideal
outcomes is closed. Relying excessively on one corporate plan with one or two
variations, more often, may not be adequate. Hence, it is desirable to keep a
contingency plan ready as standby.

Allocation of Resources and Development of Organisational Structure

The process of strategy implementation calls for an integrated set of choices and
activities. These include allocating resources, organising, assigning appropriate
authority to the key managers, setting policies and developing procedures.

It is necessary to establish an operative system to reinforce, control and evaluate a


A good strategy with effective implementation has a higher probability of success.

There source allocation decisions, such as, which department is sanctioned how
much of money and resources, in the name of the budget, and so on – set the
operative strategy of the firm.

Budgets are formulated after a series of negotiations across different levels in the
organisation. Budgets may be of different types: corporate budgets, capital
budgets, departmental budgets, sales budgets, expense budgets, and others.

An effective co-ordination and efficient division of labour requires an appropriate

organisational structure. The best structure is one, which fits into the organisational

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environment. Also its internal characteristics should give rise to an effective

Appropriate changes in the organisation structure may be initiated to ensure

strategic implementation of the proposed strategy. Effective strategic management
practices suggest that organisation structure should also change if the strategy
changes or if the organisation experiences any bottlenecks in this regard

Q.2 Mr. Nandankumar wants to start a business of his own. He is seeking

advice from a consultancy firm on how to go about it. If you were an
employee of this consultancy firm, how would you guide him in preparing a
business plan that would suit Nandankumar’s business? (10 marks)

Creating Nandakumar’s Business Plan

It is also important to establish a timeline for completing the plan. A business plan
can be completed by one staff member working full time in as little as a week,
although a thorough market analysis will add several days at least. A committee will
probably need much more time. Combinations of staff, volunteers, consultants and
a board committee may lengthen or shorten the process depending on skill level,
available time, experience with planning and research, and the group’s facilitation
needs. Now that you have decided who will put together your business plan and
have set a timeline for its completion, you are ready to begin assembling the
elements of the plan. Your business plan should contain the following sections:

· Executive summary
· Company and product description
· Market description
· Operations
· Management and ownership
· Financial information and timeline
· Risks and their mitigation

A solid business plan will clearly explain the business concept, describe the market
for your product or service, attract investment, and establish operating goals and

Executive Summary

In this section of your business plan, provide a description of your company, the
industry you will be competing in, and the product or service you plan to offer.

Sell your concept! The executive summary may be the first and only section of your
business plan that most of your audience will read. Tell the audience why the
business is a great idea. Some readers will look at this section to determine whether
or not they want to learn more about a business. Other readers will look to the
executive summary as a sample of the quality and professionalism of the overall
plan. The executive summary should be no more than one to three pages long and
should answer the following questions:

· Who are you? (describe your organization)

· What are you planning? (describe the service or product)
· Why are you planning it? (discuss the demand and market for the service or

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· How will you operate your business?
· When will you be in operation? (overview of timeline)
· What is your expected net profit? (discuss your projected sales and costs)

Although the executive summary is the first part of your business plan, you should
write it after you have written the other sections of the plan in order to include the
most important points of each section.

Company and Product Description

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.


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

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.


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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.


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


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.


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.

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Market Description

In this section, you will describe how you plan to operate the business. You will
present information on how you plan to create your product or provide your service,
describe the staff required to operate and manage the business, discuss the
equipment and materials necessary, and define the site or facility requirements, if
any. A key component of the operation of your business will be your sales and
marketing strategy, so you must describe how you will inform your target market
about your product or service and how you will convince customers to purchase it.

Production Description

Describe the steps for creating your product, from the raw material or initial stage
to the finished product, packaged and ready for distribution and sale. If you plan to
provide a service, describe the process of service deliver (such as the initial
interview, for instance, if you are offering consulting services), assessment,
research and design, and final presentation. Provide a description of any sub-
contractors or external services you plan to use in the production process. The
reader of the plan may be unfamiliar with the industry, so avoid using industry
jargon to describe the production process.


Describe the staff required to operate your business: discuss how many people you
will need; describe the tasks they will carry out; and the skills they will need.
Prepare a chart outlining the salaries and benefits you will provide to your
workforce. Provide information on how you will recruit staff and provide initial and
ongoing training of employees.

Equipment and Materials

To manufacture your product or provide your service, what type of equipment will
you need? Describe any machinery and vehicles necessary in the production,
packaging and distribution of your product, including any office equipment such as
computers, copiers, furniture, fixtures and telephone systems. Also discuss the
types of materials you will use in the production process and describe the source
and cost of those materials.


Describe the type of facility in which you will house your business. Indicate the
amount of building space you will need for production and administration. Also
discuss any building features required for the production process such as high
ceilings, specialized ventilation and heating systems, sanitized laboratory space or
vehicular accessibility. If you have already identified a location and a facility that
meets your requirements, describe its features. Even if you are planning to provide
a service instead of manufacturing a product, you need to demonstrate that you will
have adequate space for administrative functions and other activities related to the
service you plan to provide.

Market Description

Describe your strategy for locating your target market, informing or educating
customers about your product or service and convincing them to purchase it.

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Provide details on the methods you will use to advertise your product, such as print
media (advertisements in newspapers, magazines or trade journals), electronic
media (television, radio and the Internet), direct mail, telemarketing, individual
sales agents or representatives, or other approaches. Discuss the product’s or
service’s features you plan to emphasize to gain the attention of your target
market. Also detail how you will distribute and sell your product or service. Will you
use sales agents or existing retail outlets, or directly distribute your product through
a delivery service such as United Parcel Service, Federal Express or independent
trucking company?


In this section of your business plan, describe the senior managers responsible for
overseeing the start-up and operation of your business, their background and their
responsibilities in the business. Be sure to highlight your management team’s
experience in managing the production, marketing and administration of similar
businesses or within the selected industry and attach the resumes of each member
to the plan. Be sure to provide a complete job description of any vacancies in your
management team. Describe the responsibilities, the skills, the background required
and the steps you plan to take to fill that key position.


What is its relationship to your existing organization? Who is on the board of

directors / board of advisors of the new business and what are their backgrounds
and areas of expertise? Potential investors or lenders will be interested in the
ownership stake of the board of directors and also in what portion of the company’s
equity is available. Success is often due to one’s contacts, so fully describe your
business relationships with attorneys, accountants and advertising or public
relations agencies, and any industry-specific services such as suppliers and

Management and Ownership

In this section you will describe the financial feasibility of your planned venture and
provide several financial reports and statements to document why your business will
be a viable enterprise and a sound investment. At a minimum, you should provide a
brief descriptive narrative for each of the following financial statements and include
a copy in the attachments to your plan:

· Start-up budget

· Cash flow projection

· Income statement

· Balance sheet

In preparing these statements, you may want to seek the advice of a certified public
accountant (CPA).

Start-up Budget

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Describe the initial expenses you will incur to get your business up and running.
Some items you might include in your start-up budget research and product design
and development expenses, legal incorporation and licensing expenses, facility
purchase or rental, equipment and vehicle purchase or rental, and initial material or
supply purchase. You can use Worksheet B as a sample format for preparing your
start-up budget.

Cash Flow Projection

This statement presents a month-to-month schedule of the estimated cash inflows

and outflows of your business for the first year. This schedule should indicate how
much money your business will have or need and when you will need it. You should
describe your sources of income and capital, detailing your projected sales revenue
and indicating your own or investor equity contribution, lenders, investors and other
sources of capital. Itemize your projected expenses, distinguishing between the cost
of goods sold (materials, supplies, production labor), overhead expenses (rent,
utilities, insurance, maintenance, interest, insurance, administrative costs and
salaries, legal and accounting services, marketing, taxes, fees and other ongoing
operating expenses) and capital expenditures (land and buildings, equipment,
furniture, vehicles, and building repair or renovation expenses). In preparing this
statement, account for a gradual increase in sales from initial product introduction
and any expected seasonal fluctuations in revenue projections.

Income Statement

Prepare a multiyear (three- to five – year) statement of projected revenue,

expenses, capital expenditures and cost of goods sold. If you make assumptions
about the growth of your business, provide supporting documentation such as
growth patterns of similar companies or studies that forecast an industry-wide
growth rate. This statement should indicate to the reader the potential of your
business to generate cash and its profitability over time. For an existing business,
also submit an income statement for at least three prior consecutive years. Lenders
may look at this statement to determine whether your business can support the
additional debt you are requesting.

Balance Sheet

A start-up business probably will not have any assets or liabilities at the time you
are drafting the business plan. Provide a copy of the balance sheet of the business’s
sponsoring organization or individual. Describe in your narrative any assets that will
be allocated to the start-up of the business.

Financial Information and Start up Timeline

Capital Requirements

Describe the amount and type of financing you are seeking for your business. Are
you looking for debt from a lender or equity from an investor? Refer to your start up
budget and cash flow statement presented earlier. Discuss how and when you will
draw on these funds and how they will affect the bottom line. Also describe any
commitments or investments that you may have already secured.

If you are seeking investors, such as venture capitalists, describe what they will
receive in return for their capital. What is the repayment period and the expected

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return on investment? Also discuss the nature of their ownership share and how it
may change with future investments. Equity investors are looking for rates of return
higher than rates offered by banks or other business lenders. The level of risk in
your business and industry will help to determine the actual market rate, as will the
availability of equity dollars. Check with other businesses (although not direct
competitors) to see what return on investment their investors demanded. Be
prepared to negotiate. And make sure you research the investment market
carefully; several socially minded investment pools exist and more are in
development. or lenders, describe the type of financing you are seeking:

· Seed Capital – Short-term financing to cover start-up costs.

· Fixed Asset Financing – Longer-term financing for property, building

improvements, equipment or vehicles. The asset being purchased is usually pledged
as security for the loan.

· Working Capital – Short-term financing to cover operating expenses and to

bridge gaps in cash flow.

Initial Start-up Timeline

Provide a timeline of tasks and events necessary to get your business operational.
Be sure to describe the current stage you are in and what steps you have taken to
date. Include deadlines for task completion. Set realistic deadlines according to your
capacity to complete these tasks. The following is a list of some of the steps you
may wish to include:

· Filing legal incorporation documents

· Identifying and securing suitable space

· Designing and developing the product

· Obtaining required licenses or permits

· Securing necessary financing

· Leasing or purchasing equipment

· Hiring key staff

· Hiring and training of production or support staff

· Purchasing materials and production supplies

· Beginning marketing activities

· Opening

Although it is impossible to know exactly what will go wrong in starting and running
your business, thinking about different challenges will strengthen your plan.
Potential problems could include:

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· Insufficient public subsidy available to new home owners or residents

· The competition drops its prices

· Not enough customers

· Production costs exceed estimates

· Difficulty in finding qualified employees

· Environmental or governmental changes such as tax increases, additional

regulations or population changes

For each potential problem, discuss its likelihood and describe possible solutions or
actions you might undertake to mitigate the problem.

Risks and their Mitigation

Although it is impossible to know exactly what will go wrong in starting and running
your business, thinking about different challenges will strengthen your plan.

After you have completed all of the elements of your business plan, you should
focus its presentation. A well-organized plan will assist you in communicating the
most important elements of your business plan to the reader, and a persuasive plan
will help you to convince the reader to invest in your business.

Executive Summary

As mentioned earlier, this section should be written last. However, if you have
already written the executive summary, review it to make sure it embodies the
following characteristics. Because it is the first and possibly the only section of the
plan that many readers may see, the executive summary should provide an
overview of the plan and entice the reader to read the whole plan or to agree to
meet with you. The executive summary should be no more than three pages and
should briefly describe the most important elements of the plan. Review the
Executive Summary section of this manual for more tips on this critical introduction
to your business.

Q.3. a. What is the purpose of business continuity plan? (5 marks)

Purpose of Business Continuity Plan

Recent world events have challenged us to prepare to manage previously

unthinkable situations that may threaten an organization’s future. This new
challenge goes beyond the mere emergency response plan or disaster management
activities that we previously employed. Organizations now must engage in a
comprehensive process best described generically as Business Continuity. It is no
longer enough to draft a response plan that anticipates naturally, accidentally, or
intentionally caused disaster or emergency scenarios.

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Today’s threats require the creation of an on-going, interactive process that serves
to assure the continuation of an organization’s core activities before, during, and
most importantly, after a major crisis event.

In the simplest of terms, it is good business for a company to secure its assets.
CEOs and shareholders must be prepared to budget for and secure the necessary
resources to make this happen. It is necessary that an appropriate administrative
structure be put in place to effectively deal with crisis management. This will ensure
that all concerned understand who makes decisions, how the decisions are
implemented, and what the roles and responsibilities of participants are. Personnel
used for crisis management should be assigned to perform these roles as part of
their normal duties and not be expected to perform them on a voluntary basis.
Regardless of the organization – for profit, not for profit, faith-based, non-
governmental – its leadership has a duty to stakeholders to plan for its survival. The
vast majority of the national critical infrastructure is owned and operated by private
sector organizations, and it is largely for these organizations that this guideline is
intended. ASIS, the world’s largest organization of security professionals, recognizes
these facts and believes the BC Guideline offers the reader a user-friendly method
to enhance infrastructure protection.

Q.3.b. Give a short note on mitigation strategies. (5 marks)

Mitigation Strategies

Devise Mitigation Strategies

Cost effective mitigation strategies should be employed to prevent or lessen the

impact of potential crises. For example, securing equipment to walls or desks with
strapping can mitigate damage from an earthquake; sprinkler systems can lessen
the risk of a fire; a strong records management and technology disaster recovery
program can mitigate the loss of key documents and data.

Resources Needed for Mitigation

The various resources that would contribute to the mitigation process should be
identified. These resources, including essential personnel and their roles and
responsibilities, facilities, technology, and equipment should be documented in the
plan and become part of ‘‘business as usual.’’

Monitoring Systems and Resources

Systems and resources should be monitored continually as part of mitigation

strategies. Such monitoring can be likened to simple inventory management.

The resources that will support the organization to mitigate the crisis should also be
monitored continually to ensure that they will be available and able to perform as
planned during the crisis. Examples of such systems and resources include, but are
not limited to:

· Emergency equipment
· Fire alarms and suppression systems
· Local resources and vendors
· Alternate worksites

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· Maps and floor plans updated/changed due to construction and internal
· System backups and offsite storage.

Q.4. Distinguish between financial investor and strategic investor. (10


Financial Investor vs. Strategic Investor

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

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.

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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.

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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

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
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
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.

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· 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.


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.

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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.

Q. 5 Give a note on enforcement of intellectual property rights. (10 marks)

Enforcement of Intellectual Property Rights

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Intellectual property rights are of limited value unless they are effectively enforced.
Without enforcement, there are no real deterrents for infringers or

remedies for those whose rights are infringed. The legal authorities do have some
role in enforcing intellectual property rights, but this is often limited, and for
infringement of rights such as patents, plant breeders rights and trade secrets, you
would normally have to take action yourself to take the infringing party to court.
The same practical commercial considerations that apply to obtaining and managing
IP rights also apply to enforcement – in some cases, the possibility of taking court
action could act to encourage the infringing party to take out a licence to use your
technology. This would save you the expense and the uncertainty of a protracted
court case, and could provide you with a good financial return.

The procedures for enforcement of IP rights differ widely between countries,

because they have much more to do with the general legal system than other
aspects of IP rights, such as examination and grant of rights by a patent office. The
TRIPS Agreement has established some general principles for IP enforcement which
are reflected in the laws of many countries, so this discussion will focus on the
TRIPS provisions to give an overall picture of how enforcement operates.

One basic distinction in enforcement lies between more those IP infringements

which tend to be infringed widely, potentially by many different people and on a
large commercial scale, and general IP rights. In the first category are pirated
copyright works and counterfeit trade mark goods.

TRIPS, for instance, specifies that the government or legal authorities need to have
a more active role in dealing with these infringements than, say, for patents and
plant breeders’ rights. So the state often has an active role in tracking down and
prosecuting those who infringe copyright and trademark rights on a commercial
scale, whereas for patents it is normally up to the patent holder or licensee to take
an infringer to court.

Enforcement Measures Required by TRIPS

The TRIPS Agreement differs from earlier international intellectual property treaties
in several ways; this includes having specific provisions for effective enforcement of
IP rights in national laws. The main enforcement provisions in TRIPS include:

· The general obligations under the TRIPS Agreement, which relate to the provision
of fair enforcement procedures.

· Civil remedies, including injunctions, damages and provisional measures.

· Criminal procedures, which are compulsory for intentional trade mark and
copyright piracy on a commercial scale and optional for other kinds of intellectual
property, such as patents.

· Special border enforcement measures to stop counterfeit trade mark and pirated
copyright material coming into a country, border enforcement measures are
optional for other kinds of intellectual property, such as patents.

General Enforcement Obligations under Trips

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The TRIPS Agreement provides for a range of general obligations in relation to the
enforcement of intellectual property rights. The purpose of these obligations is to
ensure that the enforcement measures are effective, and that certain basic
principles of due process are met, so that enforcement is fair and balanced, and
does not impede legitimate trade.

Remedies must be timely and deter further infringements

TRIPS requires that enforcement procedures permit effective action against any
infringement of intellectual property rights, and that the remedies available are
expeditious in order to prevent infringements. A legal system that enables timely
initiation and execution of legal processes is particularly important for effective
enforcement of intellectual property rights because the information that intellectual
property protects is often easy to copy and spread quickly. The remedies available
must also be severe enough to deter further infringements. These procedures must
be applied in a way that avoids the creation of barriers to legitimate trade and to
provide for safeguards against their abuse.

Enforcement procedures must be fair.

TRIPS provides that enforcement procedures must be fair and equitable, and may
not be unnecessarily complicated or costly, or entail unreasonable time-limits or
delays. Decisions in enforcement cases must be based on the merits of a case.
Decisions should preferably be in writing and reasoned, and be made available to
the parties without undue delay. Decisions on the merits of a case must be based
only on evidence in respect of which the parties were offered the opportunity to be

Parties to a proceeding must have an avenue of appeal, unless the case was
criminal in nature and the accused was acquitted. TRIPS does not require a special
judicial system for the enforcement of intellectual property rights distinct from the
normal court system. Finally, TRIPS creates no obligations with respect to the
distribution of resources as between enforcement of intellectual property rights and
the enforcement of law in general.

Example – enforcing a patented invention for making house paint.

For example, imagine that you own a patent for house paint that dries very quickly.
It took you 8 years to develop the process and cost you thousands of dollars to
patent your invention in Australia, the US and Indonesia. Just as you started to
distribute the paint yourself in Australia you found out that your paint is being sold
cheaply to the painting trade in Sydney by a company trading as Cheap Paints. You
also suspect that Cheap Paints are exporting tins of infringing paint overseas.
Obviously you need to take legal action against Cheap Paints to enforce your rights,
otherwise, there would be no market left for you to get any financial return on your
invention. The kinds of remedies you could take against Cheap Paints are set out in
this unit.

Q. 6. Give a note on complex systems behaviour and creativity. (10 marks)

A Complex System is a system that has more than one possible future. In other
words, it is ‘free’ enough to take more than a single pre-determined path into the
future, and therefore cannot be purely ‘mechanical’. Clearly, we are all complex

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systems by this definition, and so are the organizations, communities, economic
sectors, regional economies, ecologies and global systems to which we belong and
interact with. Indeed, mechanical systems really only exist as abstractions in our
minds, and the systems we inhabit and try to manage are not mechanical. Yet all
our science and our way of thinking about problems is based on the assumption that
a company or organization comprises a set of functional components with
connecting flows of goods and information. In this view, better management is often
seen as simply running the ‘machine’ faster or more efficiently.

But that was when life was simple and the ‘product’ or ‘service’ to be produced and
delivered only needed to be made at a competitive cost with adequate quality.
Today, we must constantly create new products and services, with additional and
novel attributes, and this creative, adaptive capacity will be more important to our
survival than our level of efficiency, particularly if, as Complex Systems thinking
suggests, efficiency reduces creativity.

Traditionally, decision making and strategy have been based on a rational set of
assumptions such as:

· We know our options.

· We know and can evaluate the (single) outcome of implementing each of
· We can ignore effects that we do not know.
· The environment in the future ‘after’ the decision is known.
· There was a situation ‘before’ our decision, and that there will be a situation
‘after’ our decision, and that we can therefore examine the differences
between them.

Such reflections are typical of a cost/benefit analysis, for example, by which the
outcomes of different possible decisions are compared. Yet, in a world of rapid
change and uncertainty, the assumptions relied upon by this kind of ‘reasonable’
behaviour are simply not true. In reality, we do not necessarily know all our options,
the path the system may take, the possible dimensions that might be affected by
resulting changes, or how circumstances may have changed in the mean time. In
short, our view of our organisation as a machine, sitting in a fixed or at any rate
predictable environment, is totally inadequate. We must instead turn to new ideas –
we must harness the ideas arising from Complex Systems.

Complex Systems Behaviour

In studying Complex Systems, initially in physics and chemistry, it became clear

that the key properties of ‘open’ systems, where flows of matter, energy and
information can occur across their boundaries, were that they could undergo
spontaneous transformations of structure and functionality. Instead of a ‘fixed’
mechanical system, this showed how systems came into being, and evolved over
time, changing structurally, gaining, and sometimes shedding, complexity and

The study of Complex Systems therefore revealed a co-evolutionary process of a

system and its environment in which successive change and adaptation each
involved two separate steps:

· Discovering what to do (exploration and evaluation).

· Doing what has been decided (implementation).

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And these two steps are radically different in nature.

In Complex Systems, the first step is ‘taken’ by the ‘non-average’ underlying

elements within the system, while the second – the emergence of a transformed,
functioning system – concerns new, effective ‘average’ behaviour of the elements.
The successful co-evolution of a system with its environment therefore occurs
through the dynamic interplay of the average and non-average behaviours within it.
Successive instabilities occur each time that existing structure and organisation fail
to withstand the impact of some new circumstance or behaviour. When this occurs,
the system re-structures and becomes a different system, subjected in its turn to
the disturbances from its own non-average individuals and situations. It is this
dialogue between successive ‘systems’ and their own inner ‘richness’ that provides
the capacity for continuous adaptation and change.

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