LEADERSHIP AND STRATEGIC MANAGEMENT

Being Paper for NSE Continuing Professional Education for Executive

Engineers (CoPEEE)

By

Engr. Prof. Simon V. Irtwange, FNSE

B.Tech (Akure), M.Eng (Nsukka), PhD (Ibadan), MBA, PGDE (BSU Makurdi), Cert, Seed
Tech (India), Cert, Postharvest Bio.& Tech (Israel), MNIAE, MNSE, MASABE, MCSBE,
MNIM, MNIFST, MTRCN, FCE, F.AES, FCAI

Professor of Agricultural Processing and Storage, Department of Agricultural and

Environmental Engineering and formerly Coordinator, Entrepreneurship Development and
Knowledge Transfer, University of Agriculture, Makurdi, Nigeria
svirtwange@yahoo.com; 0803-5885567

Preamble:

New levels of leadership demand new skills. To excel as you transition into management, you
will need a clear vision of your strengths, and how to build on them; your team, and how to
lead them to high performance; and your competitive landscape, and how to address the
opportunities and challenges facing your organization and your industry. It is this broad-
based vision that will drive superior decision making and execution. Leadership and
Strategic Management uses a range of approaches to help you advance your leadership and
strategic management capabilities by ensuring that you acquire and are able to test key
concepts and skills.

Selected Leadership and Strategic Management Session Topics:

1. Strategic Leadership
2. Identifying your Preferred Leadership Style
3. Leading with Emotional Intelligence
4. Strategy and Strategic Management
5. Components of a Strategy Statement
6. Importance of Vision and Mission Statements
7. Strategic Management Process
8. Benefits of Strategic Management
9. Some Pitfalls to be Avoided in Strategic Management Process
10. Effective Strategy Process: Moving the “we/they” line
11. SWOT Analysis
12. Corporate Governance
13. Business Ethics

Page | 1
1. Strategic Leadership

Leаderѕhiр iѕ all аbоut сарасity, but what kind of capacity? The сарасity оf leаderѕ to
 liѕten аnd оbѕerve
 uѕe their exрertiѕe аѕ а ѕtаrting роint tо enсоurаge diаlоgue between аll levelѕ оf
deсiѕiоn-mаking
 eѕtаbliѕh рrосeѕѕeѕ and trаnѕраrenсy in deсiѕiоn-mаking
 аrtiсulаte their оwn vаlues аnd viѕiоnѕ сleаrly but nоt imроѕe them.
Leаderѕhiр iѕ аbоut setting agendas and nоt juѕt reасting tо аgendаѕ; it is about identifying
рrоblemѕ, аnd initiating сhаnge that mаkeѕ for ѕubѕtаntiаl improvement rather than managing
сhаnge.

Strategic leadership is the ability to influence others to voluntarily make day to day decisions
that enhance the long term viability of the organization while at the same time maintaining its
short term financial stability. Strategic leaders are the ones having organizational ability with
strategic orientation; translate strategy into action; align people and organizations; determine
effective strategic intervention points; develop strategic competencies. A strategic leader
displays a dissatisfaction or restlessness with the present; absorptive capacity; adaptive
capacity; wisdom. The concept of “adaptive capacity,” means a strategy that enables leaders
to change and learn through asserting that mastering chaos, complexity and change requires
new ways of “seeing and thinking”. A strategic leader is strategically future oriented. A
strategic leader‟s eyes are always on the horizon, not just on the near at hand. A strategic
leader influences “the organization by aligning their systems, culture, and organizational
structure to ensure consistency with the strategy.” Influencing employees to voluntarily make
decisions that enhance the organization is the most important part of strategic leadership. A
strategic leader, in both instances, prepares for the future and considers both the long-term
goal as well understanding the current contextual setting of the organization.

The three interdependent processes of leadership are thinking, acting, and influencing.
Strategic leaders have the ability to determine effective intervention points. This means that
the strategy of an effective leader is to develop new visions, create new strategies and move
in a new, sometimes unexpected, direction. At these strategic opportunity points, the most
important component is the timing of when to intervene and directing change. Strategic
leaders think strategically. Strategic thinking involves gathering information, making
connections, and filtering information or “forming ideas and strategies that are focused,
relevant, and sound.” The significance of strategic leadership “is making decisions about
whether and when to act.”

Leadership is about innovators and change agents; seeing the big picture, thinking
strategically about how to attain goals, and working (with the help of others) to achieve the
goals. Strategic orientation is the ability to be innovative in connecting long-range visions
and concepts to daily work. Strategic Leadership operates on a framework of seven
principles:
 Strategic Leaders are Futures Oriented and have a Futures Strategy;
 Strategic Leaders are Evidence Based and Research Led;
 Strategic Leaders Get Things Done;
 Strategic Leaders Open New Horizon;
 Strategic Leaders are Fit to Lead;
 Strategic Leaders Make Good Partner; and

Page | 2
 Strategic Leaders Do the „Next‟ Right Thing.

Strategic leadership refers to a manager‟s potential to express a strategic vision for the
organization, or a part of the organization, and to motivate and persuade others to acquire that
vision. Strategic leadership can also be defined as utilizing strategy in the management of
employees. It is the potential to influence organizational members and to execute
organizational change. Strategic leaders create organizational structure, allocate resources and
express strategic vision. Strategic leaders work in an ambiguous environment on very
difficult issues that influence and are influenced by occasions and organizations external to
their own.

The main objective of strategic leadership is strategic productivity. Another aim of strategic
leadership is to develop an environment in which employees forecast the organization‟s needs
in context of their own job. Strategic leaders encourage the employees in an organization to
follow their own ideas. Strategic leaders make greater use of reward and incentive system for
encouraging productive and quality employees to show much better performance for their
organization. Functional strategic leadership is about inventiveness, perception, and planning
to assist an individual in realizing his objectives and goals.

Strategic leadership requires the potential to foresee and comprehend the work environment.
It requires objectivity and potential to look at the broader picture. Strategic leaders can create
vision, express vision, passionately possess vision and persistently drive it to
accomplishment.

A few main traits/characteristics/features/qualities of effective strategic leaders that do lead to

superior performance are as follows:
 Loyalty- Powerful and effective leaders demonstrate their loyalty to their vision by their
words and actions.
 Keeping themselves updated- Efficient and effective leaders keep themselves updated
about what is happening within their organization. They have various formal and informal
sources of information in the organization.
 Judicious use of power- Strategic leaders makes a very wise use of their power. They
must play the power game skillfully and try to develop consent for their ideas rather than
forcing their ideas upon others. They must push their ideas gradually.
 Have wider perspective/outlook- Strategic leaders just don‟t have skills in their narrow
specialty but they have a little knowledge about a lot of things.
 Motivation- Strategic leaders must have a zeal for work that goes beyond money and
power and also they should have an inclination to achieve goals with energy and
determination.
 Compassion- Strategic leaders must understand the views and feelings of their
subordinates, and make decisions after considering them.
 Self-control- Strategic leaders must have the potential to control distracting/disturbing
moods and desires, i.e., they must think before acting.
 Social skills- Strategic leaders must be friendly and social.
 Self-awareness- Strategic leaders must have the potential to understand their own moods
and emotions, as well as their impact on others.
 Readiness to delegate and authorize- Effective leaders are proficient at delegation.
They are well aware of the fact that delegation will avoid overloading of responsibilities

Page | 3
 on the leaders. They also recognize the fact that authorizing the subordinates to make
decisions will motivate them a lot.
 Articulacy- Strong leaders are articulate enough to communicate the vision (vision of
where the organization should head) to the organizational members in terms that boost
those members.
 Constancy/Reliability- Strategic leaders constantly convey their vision until it becomes a
component of organizational culture.

2. Identifying Your Preferred Leadership Style

What is your natural leadership style? Do you focus on completing tasks, or on building
relationships with your team? Have you considered that this natural leadership style might be
more suited to some situations or environments than it is to others?

2.1 Understanding the Model

The Fiedler Contingency Model was created in the mid-1960s by Fred Fiedler, a scientist
who helped advance the study of personality and characteristics of leaders. The model states
that there is no one best style of leadership. Instead, a leader's effectiveness is based on the
situation. This is the result of two factors – "leadership style" and "situational favorableness"
(later called "situational control").

2.2 Leadership Style

Identifying leadership style is the first step in using the model. Fiedler believed that
leadership style is fixed, and it can be measured using a scale he developed called Least-
Preferred Co-Worker (LPC) Scale (see Table 1). The scale asks you to think about the person
who you've least enjoyed working with. This can be a person who you've worked with in
your job, or in education or training. You then rate each factor based on this person and add
up your scores. If your total score is high, you're likely to be a relationship-orientated leader.
If your total score is low, you're more likely to be task-orientated leader.

Table 1: Least-Preferred Co-Worker Scale

Unfriendly 1 2 3 4 5 6 7 8 Friendly
Unpleasant 1 2 3 4 5 6 7 8 Pleasant
Rejecting 1 2 3 4 5 6 7 8 Accepting
Tense 1 2 3 4 5 6 7 8 Relaxed
Cold 1 2 3 4 5 6 7 8 Warm
Boring 1 2 3 4 5 6 7 8 Interesting
Backbiting 1 2 3 4 5 6 7 8 Loyal
Uncooperative 1 2 3 4 5 6 7 8 Cooperative
Hostile 1 2 3 4 5 6 7 8 Supportive
Guarded 1 2 3 4 5 6 7 8 Open
Insincere 1 2 3 4 5 6 7 8 Sincere
Unkind 1 2 3 4 5 6 7 8 Kind
Inconsiderate 1 2 3 4 5 6 7 8 Considerate
Untrustworthy 1 2 3 4 5 6 7 8 Trustworthy

Page | 4
Gloomy 1 2 3 4 5 6 7 8 Cheerful
Quarrelsome 1 2 3 4 5 6 7 8 Harmonious

The model says that task-oriented leaders usually view their LPCs more negatively, resulting
in a lower score. Fiedler called these low LPC-leaders. He said that low LPCs are very
effective at completing tasks. They're quick to organize a group to get tasks and projects
done. Relationship-building is a low priority. However, relationship-oriented leaders usually
view their LPCs more positively, giving them a higher score. These are high-LPC leaders.
High LPCs focus more on personal connections, and they're good at avoiding and managing
conflict. They're better able to make complex decisions.

2.3 Situational Favorableness

Next, you determine the "situational favorableness" of your particular situation. This depends
on three distinct factors:
 Leader-Member Relations – This is the level of trust and confidence that your team has
in you. A leader who is more trusted and has more influence with the group is in a more
favorable situation than a leader who is not trusted.
 Task Structure – This refers to the type of task you're doing: clear and structured, or
vague and unstructured. Unstructured tasks, or tasks where the team and leader have little
knowledge of how to achieve them, are viewed unfavorably.
 Leader's Position Power – This is the amount of power you have to direct the group, and
provide reward or punishment. The more power you have, the more favorable your
situation. Fiedler identifies power as being either strong or weak.

2.4 Applying the Fiedler Contingency Model

Step 1: Identify your leadership style

Think about the person who you've least enjoyed working with, either now or in the past.
Rate your experience with this person using the scale in Table 1. According to this model, a
higher score means that you're naturally relationship-focused, and a lower score means that
you're naturally task-focused.

Step 2: Identify your situation

Answer the questions:

 Are leader-member relations good or poor?
 Is the task you're doing structured, or is it more unstructured, or do you have little
experience of solving similar problems?
 Do you have strong or weak power over your team?

Step 3: Determine the most effective leadership style

Table 2 shows a breakdown of all of the factors we've covered: Leader-Member Relations,
Task Structure, and Leader's Position Power. The final column identifies the type of leader
that Fiedler believed would be most effective in each situation.
Page | 5
Table 2: Breakdown of Most Effective Leader Style

Leader-Member Leader's Position Most Effective

Task Structure
Relations Power Leader
Good Structured Strong Low LPC
Good Structured Weak Low LPC
Good Unstructured Strong Low LPC
Good Unstructured Weak High LPC
Poor Structured Strong High LPC
Poor Structured Weak High LPC
Poor Unstructured Strong High LPC
Poor Unstructured Weak Low LPC

Example 1: Imagine that you've just started working in an organization, replacing a much-
loved leader who recently retired. You're leading a team who views you with distrust (so your
Leader-Member Relations are poor). The task you're all doing together is well defined
(structured), and your position of power is high because you're the boss, and you're able to
offer reward or punishment to the group. The most effective leader in this situation would be
high LPC – that is, a leader who can focus on building relationships first.

Example 2: Imagine that you're leading a team who likes and respects you (so your Leader-
Member relations are good). The project you're working on together is highly creative
(unstructured) and your position of power is high since, again, you're in a management
position of strength. In this situation a task-focused leadership style would be most effective.

2.5 Criticisms of the Fiedler Contingency Model

 One of the biggest criticisms of the model is lack of flexibility. Fiedler believed that
because our natural leadership style is fixed, the most effective way to handle
situations is to change the leader. He didn't allow for flexibility in leaders. For
instance, if a low-LPC leader is in charge of a group with good relations and doing
unstructured tasks, and she has a weak position (the fourth situation), then, according
to the model, the best solution is to replace her with a high-LPC leader – instead of
asking her to use a different leadership style.
 There is also an issue with the Least-Preferred Co-Worker Scale – if you fall near the
middle of the scoring range, then it could be unclear which style of leader you are.
 Furthermore, even under the best circumstances, the LPC scale only has about a 50
percent reliable variance. This means that the LPC scale may not be a reliable
measure of leadership capability.
 It's also perfectly possible that your least preferred co-worker is a genuinely confused,
unpleasant or evil person (they do exist) - if you are unfortunate enough to have
encountered such a person just once in your career, then you might always be
categorized as a low-LPC leader, however people-oriented you actually are.

It is generally believed that transformational leadership is the best leadership style in most
situations; however, other leadership styles are sometimes necessary. The Fiedler
Contingency Model is opined to be unhelpful in many 21st Century workplaces. It may

Page | 6
occasionally be a useful tool for analyzing a situation and determining whether or not to
focus on tasks or relationships, but be cautious about applying any style simply because the
model says you should. Use your own judgment when analyzing situations.

3. Leading with Emotional Intelligence

To be in control of a team, you need to be in control of your emotions. In fact, with emotions
underpinning nearly all our decisions, an understanding of the way emotions work, and the
way we respond to them, is something that will benefit you in every area of your career, and
life. Develop the skills to ensure you are a highly effective, emotionally intelligent leader.
Emotional intelligence (EI) has become well known throughout the business world as a
crucial component of leadership effectiveness. Intellect and business expertise can only carry
you so far if emotional intelligence is lacking. The EI model focuses specifically on the
behavioral level, on performance at work and on organizational leadership. Right application
of EI will help individuals go from being a good to a great emotionally intelligent leader and
deepen one‟s ability to lead and become more effective in helping the organization deliver the
results it needs.

3.1 The Four Components of Emotional Intelligence

You may have heard of emotional intelligence, but you may not know exactly what it means,
so let‟s begin there. In essence, Emotional Intelligence (EI) is about recognizing and
managing your emotions and those of others. There is a solid research basis from the fields of
psychology, neuroscience, and business leadership. There are four fundamental aspects of EI:
Self-Awareness, Self-Management, Social Awareness, and Relationship Management.

3.1.1 Self-Awareness

This is how aware you are and how accurately you can assess your emotions. Most of us are
so busy with the daily grind that we rarely take a step back and think about how we‟re
responding to situations and how we come across. The other source of self awareness is
recognizing how others respond to us. This is often challenging because we tend to see what
we want to see. And we tend to avoid the uncomfortable action of asking others for feedback.
To grow in yourself awareness, consider building time for reflection into your day. Also
consider getting into the routine of collecting specific feedback from people who will be
honest and whose ideas you value. It has been found that leaders who sought out negative
feedback were much more self-aware and effective than those who sought out positive
feedback.

3.1.2 Self-Management

Self-management is your ability to control your emotions. This component also includes your
transparency, adaptability, achievement, and optimism. A key factor is whether you react or
respond to situations. Answer these questions:
 When you get an irritating email, do you write back right away?
 Do you sometimes find yourself regretting how you handled yourself, wishing that you
had been more calm and poised?
 Do you lose patience or rush others?

Page | 7
If you said yes to any of these questions, you may be in the habit of reacting rather than
responding. When you react, you do what comes naturally, which is going with the emotional
part of your brain. When you respond, you act against what is natural, which is why it is
difficult. You engage the rational part of your brain and select the best response.

3.1.3 Social Awareness

Your organizational awareness, focus on service, and level of empathy compose your social
awareness. Improve your organizational awareness by fine-tuning your radar for the
emotional climate in groups, and recognizing power dynamics. Improve your service
orientation by fine-tuning your radar for your customers‟ or clients‟ needs. Do this by first
and foremost, always taking personal responsibility even when things aren‟t going well.
Other strategies to enhance your service orientation include being as available and responsive
to your customers as possible, and coming up with a system to regularly gather feedback.

3.1.4 Relationship Management

Developing others, serving as an inspiring leader and catalyst for change, collaborating with a
high-performing team, and managing conflict are part of relationship management. You are
high on this characteristic if others perceive you as likeable and you‟re able to work well with
diverse groups, even in the face of stress and conflict. As you can imagine, to do this requires
the three (3) characteristics we just discussed, plus finesse in dealing with others. If you can
create and communicate an inspiring vision and help them to do difficult things, such as
embrace change, you are definitely high on this characteristic.

4. Strategy and Strategic Management

4.1 Definitions of Strategy

The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and
“ago” (meaning leading/moving). There are several definitions for strategy:
 Strategy is an action that managers take to attain one or more of the organization‟s goals.
 Strategy is a general direction set for the company and its various components to achieve
a desired state in the future.
 A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present
objectives.
 Strategy can also be defined as knowledge of the goals, the uncertainty of events and the
need to take into consideration the likely or actual behavior of others.
 Strategy is the blueprint of decisions in an organization that shows its objectives and
goals, reduces the key policies, and plans for achieving these goals, and defines the
business the company is to carry on, the type of economic and human organization it
wants to be, and the contribution it plans to make to its shareholders, customers and
society at large.
While planning a strategy it is essential to consider that decisions are not taken in a vacuum
and that any act taken by a firm is likely to be met by a reaction from those affected,
competitors, customers, employees or suppliers.

Page | 8
4.1.1 Features of Strategy

 Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
 Strategy deals with long term developments rather than routine operations, i.e., it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
 Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.
 Strategy is a well defined roadmap of an organization. It defines the overall mission,
vision and direction of an organization. The objective of a strategy is to maximize an
organization‟s strengths and to minimize the strengths of the competitors.
 Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
It spells how to get there and at what cost.

4.2 Definitions of Strategic Management

Strategic management is
 the identification and description of the strategies that managers can carry so as to achieve
better performance and a competitive advantage for their organization. An organization is
said to have competitive advantage if its profitability is higher than the average
profitability for all companies in its industry.
 a bundle of decisions and acts which a manager undertakes and which decides the result
of the firm‟s performance.
 planning for both predictable as well as unforeseeable contingencies. It is applicable to
both small as well as large organizations as even the smallest organizations face
competition and, by formulating and implementing appropriate strategies, they can attain
sustainable competitive advantage.
 a way in which strategists set the objectives and proceed about attaining them. It deals
with making and implementing decisions about future direction of an organization. It
helps identify the direction in which an organization is moving.
 a continuous process that evaluates and controls the business and the industries in which
an organization is involved; evaluates its competitors and sets goals and strategies to meet
all existing and potential competitors; and then reevaluates strategies on a regular basis to
determine how it has been implemented and whether it was successful or needs
replacement.

4.2.1 Major Roles of Strategic Management

One of the major role of strategic management is to incorporate various functional areas of
the organization completely, as well as, to ensure these functional areas harmonize and get
together well. Another role of strategic management is to keep a continuous eye on the goals
and objectives of the organization. Strategic Management gives a broader perspective to the
employees of an organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is nothing but
the art of managing employees in a manner which maximizes the ability of achieving
business objectives. The employees become more trustworthy, more committed and more
satisfied as they can co-relate themselves very well with each organizational task. They can

Page | 9
understand the reaction of environmental changes on the organization and the probable
response of the organization with the help of strategic management. Thus the employees can
judge the impact of such changes on their own job and can effectively face the changes. The
managers and employees must do appropriate things in appropriate manner. They need to be
both effective as well as efficient.

5. Components of a Strategy Statement

The strategy statement of a firm sets the firm‟s long-term strategic direction and broad policy
directions. It gives the firm a clear sense of direction and a blueprint for the firm‟s activities
for the upcoming years. The main constituents of a strategic statement are as follows:
 Strategic Intent
 Mission Statement
 Vision Statement
 Goals and Objectives

5.1 Strategic Intent

An organization‟s strategic intent is the purpose that it exists and why it will continue to
exist, provided it maintains a competitive advantage. Strategic intent gives a picture about
what an organization must get into immediately in order to achieve the company‟s vision. It
motivates the people. It clarifies the vision of the company. Strategic intent helps
management to emphasize and concentrate on the priorities. Strategic intent is, nothing but,
the influencing of an organization‟s resource potential and core competencies to achieve what
at first may seem to be unachievable goals in the competitive environment. A well expressed
strategic intent should guide/steer the development of strategic intent or the setting of goals
and objectives that require that all of organization‟s competencies be controlled to maximum
value.

Strategic intent includes directing organization‟s attention on the need of winning; inspiring
people by telling them that the targets are valuable; encouraging individual and team
participation as well as contribution; and utilizing intent to direct allocation of resources.
Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment, strategic intent
emphasizes on building new resources and potentials so as to create and exploit future
opportunities.

5.2 Mission Statement

Mission statement is the statement of the role by which an organization intends to serve it‟s
stakeholders. It describes why an organization is operating and thus provides a framework
within which strategies are formulated. It describes what the organization does (i.e., present
capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique
(i.e., reason for existence). A mission statement differentiates an organization from others by
explaining its broad scope of activities, its products, and technologies it uses to achieve its
goals and objectives. It talks about an organization‟s present (i.e., “about where we are”).
Once the mission statement is formulated, it serves the organization in long run, but it may
become ambiguous with organizational growth and innovations. In today‟s dynamic and
competitive environment, mission may need to be redefined. However, care must be taken

Page | 10
that the redefined mission statement should have original fundamentals/components. Mission
statement has three main components –
 a statement of mission or vision of the company,
 a statement of the core values that shape the acts and behavior of the employees, and
 a statement of the goals and objectives.

5.2.1 Features of a Mission Statement

 It must be feasible and attainable. It should be possible to achieve it.

 It should be clear enough so that any action can be taken.
 It should be inspiring for the management, staff and society at large.
 It should be precise enough, i.e., it should be neither too broad nor too narrow.
 It should be unique and distinctive to leave an impact in everyone‟s mind.
 It should be analytical, i.e., it should analyze the key components of the strategy.
 It should be credible, i.e., all stakeholders should be able to believe it.

5.3 Vision Statement

A vision statement identifies where the organization wants or intends to be in future or where
it should be to best meet the needs of the stakeholders. It describes dreams and aspirations for
the future. A vision is the potential to view things ahead of themselves. It answers the
question “where we want to be”. A vision statement is for the organization and it’s
members, unlike the mission statement which is for the customers/clients. It contributes
in effective decision making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this understanding to
direct and guide the organization towards a better purpose.

5.3.1 Features of a Vision Statement

 It must be unambiguous.
 It must be clear.
 It must harmonize with organization‟s culture and values.
 The dreams and aspirations must be rational/realistic.
 Vision statements should be shorter so that they are easier to memorize.
In order to realize the vision, it must be deeply instilled in the organization, being owned and
shared by everyone involved in the organization.

5.4 Goals and Objectives

5.4.1 Goals

A goal is a desired future state that an organization tries to achieve. Goals specify in
particular what must be done if an organization is to attain mission or vision. Goals make
mission more prominent and concrete. They co-ordinate and integrate various functional and
departmental areas in an organization.

Page | 11
Features of Good Goals
 These are precise and measurable.
 These look after critical and significant issues.
 These are realistic and challenging.
 These must be achieved within a specific time frame.
 These include both financial as well as non-financial components.
 In summary, good goals are SMART.

Letter Most Alternatives Criterion Questions

Common
S Specific Significant, The first criterion stresses the need What: What do I want to
Stretching, for a specific goal rather than a accomplish?
Simple, more general one. This means the Why: Specific reasons,
Sustainable goal is clear and unambiguous; purpose or benefits of
without vagaries and platitudes. To accomplishing the goal.
make goals specific, they must tell a Who: Who is involved?
team exactly what is expected, why Where: Identify a location.
is it important, who‟s involved, Which: Identify
where is it going to happen and requirements and
which attributes are important. constraints.
M Measurable Motivational, The second criterion stresses the How much?
Manageable, need for concrete criteria for How many?
Meaningful measuring progress toward the How will I know when it is
attainment of the goal. The thought accomplished?
behind this is that if a goal is not
measurable, it is not possible to
know whether a team is making
progress toward successful
completion. Measuring progress is
supposed to help a team stay on
track, reach its target dates, and
experience the exhilaration of
achievement that spurs it on to
continued effort required to reach
the ultimate goal.
A Attainable Appropriate, The third criterion stresses the How: How can the goal be
Achievable, importance of goals that are accomplished?
Agreed, realistic and attainable. While an
Assignable, attainable goal may stretch a team
Actionable, in order to achieve it, the goal is not
Action- extreme. That is, the goals are
Oriented, neither out of reach nor below
Adjustable, standard performance, as these may
Ambitious, be considered meaningless. When
Aligned with you identify goals that are most
corporate goals, important to you, you begin to
Aspirational, figure out ways you can make them
Acceptable come true. You develop the
attitudes, abilities, skills, and
financial capacity to reach them.
The theory states that an attainable
goal may cause goal-setters to
identify previously overlooked
opportunities to bring themselves
closer to the achievement of their
goals.

Page | 12
Letter Most Alternatives Criterion Questions
Common
R Relevant Result-Based, The fourth criterion stresses the Does this seem worthwhile?
Results- importance of choosing goals that Is this the right time?
Oriented, matter. A bank manager's goal to Does this match our other
Resourced, "make 100 loaves of bread by efforts/needs?
Resonant, 5:00pm" may be specific, Are you the right person?
Realistic, measurable, attainable, and time- Is it applicable in current
Reasonable bound, but lacks relevance. Many socio- economic- technical
times you will need support to environment?
accomplish a goal: resources, a
champion voice, someone to knock
down obstacles. Goals that are
relevant to your boss, your team,
your organization will receive that
needed support.

Relevant goals (when met) drive the

team, department, and organization
forward. A goal that supports or is
in alignment with other goals would
be considered a relevant goal.
T Time-bound Time-Oriented, The fifth criterion stresses the When?
Time-Framed, importance of grounding goals What can I do four months
Timed, Time- within a time frame, giving them a from now?
Based, target date. A commitment to a What can I do four weeks
Timeboxed, deadline helps a team focus their from now?
Time-Specific, efforts on completion of the goal on What can I do today?
Timetabled, or before the due date. This part of
Time Limited, the SMART goal criteria is
Time/Cost intended to prevent goals from
Limited, being overtaken by the day-to-day
Trackable, crises that invariably arise in an
Tangible, organization. A time-bound goal is
Timely, Time- intended to establish a sense of
Sensitive urgency.

5.4.2 Objectives

Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.

Features of Effective Objectives

 These are not single for an organization, but multiple.
 Objectives should be both short-term as well as long-term.
 Objectives must respond and react to changes in environment, i.e., they must be flexible.
 These must be feasible, realistic and operational.

6. Importance of Vision and Mission Statements

One of the first things that any observer of management thought and practice asks is whether
a particular organization has a vision and mission statement. In addition, one of the first
things that one learns in a business school is the importance of vision and mission statements.

Page | 13
It has been found in studies that organizations that have lucid, coherent, and meaningful
vision and mission statements return more than double the numbers in shareholder benefits
when compared to the organizations that do not have vision and mission statements. Indeed,
the importance of vision and mission statements is such that it is the first thing that is
discussed in management textbooks on strategy. Vision and mission statements:
 provide unanimity of purpose to organizations and imbue the employees with a sense of
belonging and identity.
 are embodiments of organizational identity and carry the organizations creed and motto.
 spell out the context in which the organization operates and provides the employees with
a tone that is to be followed in the organizational climate.
 define the reason for existence of the organization and are indicators of the direction in
which the organization must move to actualize the goals therein.
 serve as focal points for individuals to identify themselves with the organizational
processes and to give them a sense of direction while at the same time deterring those
who do not wish to follow them from participating in the organization‟s activities.
 help to translate the objectives of the organization into work structures and to assign tasks
to the elements in the organization that are responsible for actualizing them in practice.
 specify the core structure on which the organizational edifice stands and to help in the
translation of objectives into actionable cost, performance, and time related measures.
 provide a philosophy of existence to the employees, which is very crucial because as
humans, we need meaning for working in a particular organization.
From the foregoing, it can be inferred that articulate, coherent, and meaningful vision and
mission statements go a long way in setting the base performance and actionable parameters
and embody the spirit of the organization. In other words, vision and mission statements are
as important as the various identities that individuals have in their everyday lives. It is for this
reason that organizations spend a lot of time in defining their vision and mission statements
and ensure that they come up with the statements that provide meaning instead of being mere
sentences that are devoid of any meaning.

7. Strategic Management Process

The strategic management process means defining the organization‟s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance. Strategic management process
has following four steps:

Page | 14
7.1 Environmental Scanning

Environmental scanning refers to a process of collecting, scrutinizing and providing

information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process, management
should evaluate it on a continuous basis and strive to improve it.

Organizational environment consists of both external and internal factors. Environment must
be scanned so as to determine development and forecasts of factors that will influence
organizational success. Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships within an organization‟s
internal and external environment. It helps the managers to decide the future path of the
organization. Scanning must identify the threats and opportunities existing in the
environment. While formulating strategy, an organization must take advantage of the
opportunities and minimize the threats. A threat for one organization may be an opportunity
for another.

Internal analysis of the environment is the first step of environment scanning. Organizations
should observe the internal organizational environment. This includes employee interaction
with other employees, employee interaction with management, manager interaction
with other managers, and management interaction with shareholders, access to natural
resources, brand awareness, organizational structure, main staff, operational potential,
etc. Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an
organization.

As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify
competitors’ moves and actions. Organizations have also to update the core competencies
and internal environment as per external environment. Environmental factors are infinite,
hence, organization should be agile and virile to accept and adjust to the environmental
changes. For instance, monitoring might indicate that an original forecast of the prices of the
raw materials that are involved in the product are no more credible, which could imply the
requirement for more focused scanning, forecasting and analysis to create a more trustworthy
prediction about the input costs. In a similar manner, there can be changes in factors such as
competitor‟s activities, technology, market tastes and preferences. In external analysis, three
correlated environment should be studied and analyzed:
 immediate/industry environment
 national environment
 broader socio-economic environment/macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the
organization‟s industry, including the competitive position of a particular organization and its
main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is
essential. It also implies evaluating the effect of globalization on competition within the
industry. Analyzing the national environment needs an appraisal of whether the national
framework helps in achieving competitive advantage in the globalized environment. Analysis
of macro-environment includes exploring macro-economic, social, government, legal,
technological and international factors that may influence the environment. The analysis of

Page | 15
organization‟s external environment reveals opportunities and threats for an organization.
Strategic managers must not only recognize the present state of the environment and their
industry but also be able to predict its future positions.

7.2 Strategy Formulation

Strategy formulation refers to the process of choosing the most appropriate course of action
for the realization of organizational goals and objectives and thereby achieving the
organizational vision; it is the process of deciding the best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies. The
process of strategy formulation basically involves six main steps. Though these steps do not
follow a rigid chronological order, however they are very rational and can be easily followed
in this order.

7.2.1 Setting Organizations’ Objectives

The key component of any strategy statement is to set the long-term objectives of the
organization. It is known that strategy is generally a medium for realization of organizational
objectives. Objectives stress the state of being there whereas Strategy stresses upon the
process of reaching there. Strategy includes both the fixation of objectives as well as the
medium to be used to realize those objectives. Thus, strategy is a wider term which believes
in the manner of deployment of resources so as to achieve the objectives. While fixing the
organizational objectives, it is essential that the factors which influence the selection of
objectives must be analyzed before the selection of objectives. Once the objectives and the
factors influencing strategic decisions have been determined, it is easy to take strategic
decisions.

7.2.2 Evaluating the Organizational Environment

The next step is to evaluate the general economic and industrial environment in which the
organization operates. This includes a review of the organizations competitive position. It is
essential to conduct a qualitative and quantitative review of an organizations existing product
or service line. The purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the management can identify
their own strengths and weaknesses as well as their competitors‟ strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors‟ moves and actions so as to discover probable opportunities of threats to its
market or supply sources.

7.2.3 Setting Quantitative Targets

An organization must practically fix the quantitative target values for some of the
organizational objectives. The idea behind this is to compare with long term customers, so as
to evaluate the contribution that might be made by various product zones or operating
departments.

Page | 16
7.2.4 Aiming in Context with the Divisional Plans

The contribution made by each department or division or product/service category within the
organization is identified and accordingly strategic planning is done for each sub-unit. This
requires a careful analysis of macroeconomic trends.

7.2.5 Performance Analysis

Performance analysis includes discovering and analyzing the gap between the planned or
desired performance. A critical evaluation of the organizations past performance, present
condition and the desired future conditions must be done by the organization. This critical
evaluation identifies the degree of gap that persists between the actual reality and the long-
term aspirations of the organization. An attempt is made by the organization to estimate its
probable future condition if the current trends persist.

7.2.6 Choice of Strategy

This is the ultimate step in Strategy Formulation. The best course of action is actually chosen
after considering organizational goals, organizational strengths, potential and limitations as
well as the external opportunities.

7.3 Strategy Implementation

Strategy implementation
 implies making the strategy work as intended or putting the organization‟s chosen
strategy into action.
 includes designing the organization‟s structure, distributing resources, developing
decision making process, and managing human resources.
 is the translation of chosen strategy into organizational action so as to achieve strategic
goals and objectives.
 is the manner in which an organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance. Organizational structure allocates
special value developing tasks and roles to the employees and states how these tasks and
roles can be correlated so as maximize efficiency, quality, and customer satisfaction - the
pillars of competitive advantage. Organizational control system equips managers with
motivational incentives for employees as well as feedback on employees and
organizational performance. Organizational culture refers to the specialized collection
of values, attitudes, norms and beliefs shared by organizational members and groups.

The main steps in implementing a strategy are as follows:

 Developing an organization having potential of carrying out strategy successfully.
 Disbursement of abundant resources to strategy-essential activities.
 Creating strategy-encouraging policies.
 Employing best policies and programs for constant improvement.
 Linking reward structure to accomplishment of results.
 Making use of strategic leadership.

Page | 17
Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability between
strategy and each organizational dimension such as organizational structure, reward structure,
resource-allocation process, etc.

7.4 Strategy Evaluation

Strategy evaluation is the final step of strategy management process. The key strategy
evaluation activities are: appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial/corrective actions. Evaluation makes
sure that the organizational strategy as well as its implementation meets the organizational
objectives. Strategy Evaluation is as significant as strategy formulation because it throws
light on the efficiency and effectiveness of the comprehensive plans in achieving the desired
results. The managers can also assess the appropriateness of the current strategy in today‟s
dynamic world with socio-economic, political and technological innovations. Strategic
Evaluation is the final phase of strategic management. The significance of strategy evaluation
lies in its capacity to co-ordinate the task performed by managers, groups, departments etc,
through control of performance. Strategic Evaluation is significant because of various factors
such as - developing inputs for new strategic planning, the urge for feedback, appraisal and
reward, development of the strategic management process, judging the validity of strategic
choice, etc. there are four steps in the process of Strategy Evaluation:

7.4.1 Fixing Benchmark of Performance

While fixing the benchmark, strategists encounter questions such as - what benchmarks to
set, how to set them and how to express them. In order to determine the benchmark
performance to be set, it is essential to discover the special requirements for performing the
main task. The performance indicator that best identify and express the special requirements
might then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance.
Quantitative criteria include determination of net profit, ROI, earning per share, cost of
production, rate of employee turnover etc. Among the Qualitative factors are subjective
evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc.

7.4.2 Measurement of Performance

The standard performance is a bench mark with which the actual performance is to be
compared. The reporting and communication system helps in measuring the performance. If
appropriate means are available for measuring the performance and if the standards are set in
the right manner, strategy evaluation becomes easier. But various factors such as managers
contribution are difficult to measure. Similarly divisional performance is sometimes difficult
to measure as compared to individual performance. Thus, variable objectives must be created
against which measurement of performance can be done. The measurement must be done at
right time else evaluation will not meet its purpose. For measuring the performance, financial
statements like - balance sheet, profit and loss account must be prepared on an annual basis.

Page | 18
7.4.3 Analyzing Variance

While measuring the actual performance and comparing it with standard performance there
may be variances which must be analyzed. The strategists must mention the degree of
tolerance limits between which the variance between actual and standard performance may be
accepted. The positive deviation indicates a better performance but it is quite unusual
exceeding the target always. The negative deviation is an issue of concern because it
indicates a shortfall in performance. Thus in this case the strategists must discover the causes
of deviation and must take corrective action to overcome it.

7.4.4 Taking Corrective Action

Once the deviation in performance is identified, it is essential to plan for a corrective action.
If the performance is consistently less than the desired performance, the strategists must carry
a detailed analysis of the factors responsible for such performance. If the strategists discover
that the organizational potential does not match with the performance requirements, then the
standards must be lowered. Another rare and drastic corrective action is reformulating the
strategy which requires going back to the process of strategic management, reframing of
plans according to new resource allocation trend and thus consequently going to the
beginning point of the strategic management process.

8. Benefits of Strategic Management

There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer markets,
and newer forays into business lines are only possible if firms indulge in strategic planning.
Next, strategic management allows firms to take an objective view of the activities being
done by it and do a cost benefit analysis as to whether the firm is profitable, both financially
and whether the business is strategically aligned to its goals and priorities. The key point to
be noted here is that strategic management allows a firm to orient itself to its market and
consumers and ensure that it is actualizing the right strategy.

In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the way in
which strategic management is done and strategic planning is carried out makes the
difference between success and failure. Of course, there are still firms that do not engage in
strategic planning or where the planners do not receive the support from management. These
firms ought to realize the benefits of strategic management and ensure their longer-term
viability and success in the marketplace.

8.1 Financial Benefits

It has been shown in many studies that firms that engage in strategic management are more
profitable and successful than those that do not have the benefit of strategic planning and
strategic management. When firms engage in forward looking planning and careful
evaluation of their priorities, they have control over the future, which is necessary in the fast
changing business landscape of the 21st century. Most businesses fail due to lack of strategic
focus and strategic direction. Further, high performing firms tend to make more informed
decisions because they have considered both the short term and long-term consequences and

Page | 19
hence, have oriented their strategies accordingly. In contrast, firms that do not engage
themselves in meaningful strategic planning are often bogged down by internal problems and
lack of focus that leads to failure.

8.2 Non-Financial Benefits

Firms that engage in strategic management are more aware of the external threats, an
improved understanding of competitor strengths and weaknesses and increased employee
productivity. They also have lesser resistance to change and a clear understanding of the link
between performance and rewards. The key aspect of strategic management is that the
problem solving and problem preventing capabilities of the firms are enhanced through
strategic management. Strategic management is essential as it helps firms to rationalize
change and actualize change and communicate the need to change better to its employees.
Finally, strategic management helps in bringing order and discipline to the activities of the
firm in both internal processes and external activities.

9. Some Pitfalls to be avoided in Strategic Management

It needs to be remembered that strategic management and strategic planning are intricate and
complex processes that take the organization into unchartered territories. Hence, they do not
provide a readymade prescription for success nor do they promise instant solutions to all
problems that the organization is facing. Instead, strategic management and strategic planning
are processes that take the organization through a journey that involves providing a
framework for solving problems and addressing questions. Strategy is formal and emergent at
the same time meaning that there needs to be formal planning as well as elbowroom for
spontaneous evolution of the strategic planning process. This is the overriding imperative that
organizations must follow if they are to actualize strategies that make them market leaders.

Some of the pitfalls to be avoided in strategic management and strategic planning are listed
below:
 The first and foremost pitfall relates to using strategic management and strategic planning
only to satisfy accreditation and regulatory requirements instead of adding value to the
firm‟s processes.
 Getting into solution mode without thinking through the complex problems that 21st
century organizations face. It needs to be remembered that many problems that businesses
face need “slow fixes” rather than quick and easy solutions that are attractive at first
glance but fail over the longer term.
 When the top managers do not support the strategic management process because of
intra-organizational politics, any strategy however good would fail because of the lack of
buy-in from key interests in the organization.
 When the planning is delegated to a “planner” instead of all the managers getting
involved, there are issues to do with lack of information and lack of execution, which
results in the strategy going haywire.
 When firms are bogged down by too many internal problems that sap the energies of the
managers, strategic planning and strategic management become futile, as the managers
are engrossed in firefighting and solving the internal problems rather than focusing on the
external aspects.
 One of the pitfalls of strategic planning happens when organizations become so formal
and structured in their approach that they neglect the creative and flexible aspects. The

Page | 20
 point to be noted here is that out of the box thinking and non-linearity are important for
firms to succeed in today‟s business landscape.
 On the other hand, too much reliance on intuition can cost firms dearly as after all
strategy is a series of steps that need to be actualized and hence, there is a need for a well
thought out and detailed plan.
While these are the some of the pitfalls of strategic planning, there are other aspects like not
working to a plan and being too much bureaucratic. Since the organizations of the future need
to be agile and flexible with the ability to be malleable according to the changing market
conditions and yet at the same time, have a core structure that is consistent with core
competencies, a mix of formal and informal planning is needed for effective strategic
management.

10. Effective Strategy Process: Moving the “we/they” line

In every organization, there is a line that can be drawn. Above the line, generally at the more
senior levels of the organization, people use the word “we” to imply collective responsibility
for success and failure. People in this group say things like, “We did this well.” “We should
have done this better.” “We need to discuss this more.” “We should have planned this out
more carefully.” Below the line, generally at lower levels of the organization, people use the
word “they” to imply that things are being done to them by others and frequently these things
are not good. People in this group say things like, “They messed up.” “They should have
done that better.” “They should have planned this more carefully.”

Effective strategy processes move the “we/they” line down in the organization so that more
people use the word “we” and take ownership for making things happen and making things
better. Good strategic leadership practices, with the right balance of the analytic dimension
and the human dimension and the discipline and commitment to see the process through
during strategy formulation and implementation can be a strong driver to take the “we/they”
line much deeper into the organization. A deep “we” line produces winning strategies
because those in the “we” are much more willing and able to meet the demands of perpetual
change.

Building prepared minds on a large scale begins and ends with the senior person focusing on
being the architect of the strategy process as much as the product. The focus is on working
the middle ground between the analytical and the human dimensions, not giving up on the
clarity that comes from the analytical rigor nor the broad-based commitment and
organizational agility that comes from addressing the human dimension. Ultimately a deep
“we” line is a signal that employees are developing, evolving, modulating, fine-tuning and
executing a strategy concurrently.

11. SWOT Analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,

Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have
some measure of control. Also, by definition, Opportunities (O) and Threats (T) are
considered to be external factors over which you have essentially no control.

Page | 21
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that
will create a firm specific business model that will best align an organization‟s resources and
capabilities to the requirements of the environment in which the firm operates. In other
words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive
and negative factors inside and outside the firm that affect the success. A consistent study of
the environment in which the firm operates helps in forecasting/predicting the changing
trends and also helps in including them in the decision-making process of the organization.

The manager must have a thorough knowledge and analysis of the general and competitive
organizational environment so as to take right decisions. They should conduct a SWOT
Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational weaknesses, make use of arising
opportunities from the business environment and shouldn‟t ignore the threats.

11.1 Components of SWOT Analysis

11.1.1 Strengths

Strengths are the qualities that enable us to accomplish the organization‟s mission. These are
the basis on which continued success can be made and sustained. Strengths can be either
tangible or intangible. These are what you are well-versed in or what you have expertise in,
the traits and qualities your employees possess (individually and as a team) and the distinct
features that give your organization its consistency. Strengths are the beneficial aspects of the
organization or the capabilities of an organization, which includes human competencies,
process capabilities, financial resources, products and services, customer goodwill and brand
loyalty.

11.1.2 Weaknesses

Weaknesses are the qualities that prevent us from accomplishing our mission and achieving
our full potential. These weaknesses deteriorate influences on the organizational success and
growth. Weaknesses are the factors which do not meet the standards we feel they should
meet. Weaknesses in an organization may be depreciating machinery, insufficient research
and development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational weaknesses
are huge debts, high employee turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc.

11.1.3 Opportunities

Opportunities are presented by the environment within which our organization operates.
These arise when an organization can take benefit of conditions in its environment to plan
and execute strategies that enable it to become more profitable. Organizations can gain
competitive advantage by making use of opportunities. Organization should be careful and
recognize the opportunities and grasp them whenever they arise. Opportunities may arise
from market, competition, industry/government and technology. Increasing demand for a

Page | 22
product accompanied by deregulation is a great opportunity for new firms to enter and
compete with existing firms for revenue.

11.1.4 Threats

Threats arise when conditions in external environment jeopardize the reliability and
profitability of the organization‟s business. They compound the vulnerability when they
relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and reducing
industry profits; etc.

11.2 Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against
internal weaknesses and external threats. They also keep a watch on their overall business
environment and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning as follows:

 It is a source of information for strategic planning.
 Builds organization‟s strengths.
 Reverse its weaknesses.
 Maximize its response to opportunities.
 Overcome organization‟s threats.
 It helps in identifying core competencies of the firm.
 It helps in setting of objectives for strategic planning.
 It helps in knowing past, present and future so that by using past and current data, future
plans can be worked out.
 Provides information that helps in synchronizing the firm‟s resources and capabilities
with the competitive environment in which the firm operates.

12. Corporate Governance

12.1 Scope of Corporate Governance

 Corporate Governance refers to the way a corporation is governed. It is the technique by

which companies are directed and managed. It means carrying the business as per the
stakeholders‟ desires. It is actually conducted by the board of Directors and the concerned
committees for the company‟s stakeholder‟s benefit. It is all about balancing individual
and societal goals, as well as, economic and social goals.
 Corporate Governance is the interaction between various participants (shareholders, board
of directors, and company‟s management) in shaping corporation‟s performance. The
relationship between the owners and the managers in an organization must be healthy and
there should be no conflict between the two. The owners must see that individual‟s actual
performance is according to the standard performance. These dimensions of corporate
governance should not be overlooked.

Page | 23
 Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
authority. In modern corporations, the functions/ tasks of owners and managers should be
clearly defined, rather, harmonizing.
 Corporate Governance deals with determining ways to take effective strategic decisions.
It gives ultimate authority and complete responsibility to the Board of Directors. In
today‟s market-oriented economy, the need for corporate governance arises. Also,
efficiency as well as globalization are significant factors urging corporate governance.
Corporate Governance is essential to develop added value to the stakeholders.
 Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as
minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their
rights and that the organization fully recognizes their rights.
 Corporate Governance encourages a trustworthy, moral, as well as ethical environment. It
includes both social and institutional aspects

12.2 Benefits of Corporate Governance

 Good corporate governance ensures corporate success and economic growth.

 Strong corporate governance maintains investors‟ confidence, as a result of which,
company can raise capital efficiently and effectively.
 It lowers the capital cost.
 There is a positive impact on the share price.
 It provides proper inducement to the owners as well as managers to achieve objectives
that are in interests of the shareholders and the organization.
 Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
 It helps in brand formation and development.
 It ensures organization in managed in a manner that fits the best interests of all.

13. Business Ethics

13.1 Definition of Business Ethics

Business Ethics refers to carrying business as per self-acknowledged moral standards. It is

actually a structure of moral principles and code of conduct applicable to a business. Business
ethics are applicable not only to the manner the business relates to a customer but also to the
society at large. It is the worth of right and wrong things from business point of view.
Business ethics not only talk about the code of conduct at workplace but also with the clients
and associates. Companies which present factual information, respect everyone and
thoroughly adhere to the rules and regulations are renowned for high ethical standards.
Business ethics implies conducting business in a manner beneficial to the societal as well as
business interests. Every strategic decision has a moral consequence. The main aim of
business ethics is to provide people with the means for dealing with the moral complications.
Ethical decisions in a business have implications such as satisfied work force, high sales, low
regulation cost, more customers and high goodwill. Some of ethical issues for business are
relation of employees and employers, interaction between organization and customers,

Page | 24
interaction between organization and shareholders, work environment, environmental issues,
bribes, employees rights protection, product safety etc.

13.2 Some Significant Ethical Principles for a Successful Business

 Protect the basic rights of the employees/workers.

 Follow health, safety and environmental standards.
 Continuously improvise the products, operations and production facilities to optimize the
resource consumption
 Do not replicate the packaging style so as to mislead the consumers.
 Indulge in truthful and reliable advertising.
 Strictly adhere to the product safety standards.
 Accept new ideas. Encourage feedback from both employees as well as customers.
 Present factual information. Maintain accurate and true business records.
 Treat everyone (employees, partners and customers) with respect and integrity.
 The mission and vision of the company should be very clear to it.
 Do not get engaged in business relationships that lead to conflicts of interest. Discourage
black marketing, corruption and hoarding.
 Meet all the commitments and obligations timely.
 Encourage free and open competition. Do not ruin competitors‟ image by fraudulent
practices.
 The policies and procedures of the Company should be updated regularly.
 Maintain confidentiality of personal data and proprietary records held by the company.
 Do not accept child labour, forced labour or any other human right abuses.

Page | 25