Total quality Management

Total quality Management

Total quality management (TQM) is a business philosophy that embodies the belief that the management process must focus on integrating the idea of customer driven quality throughout an organization (Zikmund, 1994). With customer as the organization's main focus, improvement of product quality and service delivery. Managers improve durability and enhance a product with additional features as the product matures in age. Managers also try to improve the ecommerce interface and speed up deliveries and improve other services in order to remain competitive.

The philosophy underlying the implementation of a Tqm strategy is to see customers and clients as the vital key to organizational success. Organizations that emphasize total quality management see their business through the eyes of their customers and clients and then measure their organization's performance against customer or client expectations.

Effective total quality management implies that the product must not be considered as being merely acceptable but must go beyond this for a given price range. For example a customer should not just feel that there was nothing wrong with the product and it was just able to perform what it was made for,but the customer should have some delightful surprises from the product and the product should provide some unexpected benefits.

The level of product quality is the degree to which a product or service is equal to or greater than customers' or clients' expectations. The formular being LPQ>CE where LPQ= level of product quality and CE= Customer / client expectation.

A Tot quality management strategy requires considerable survey research (Zikmund 1994) it expresses the conviction that in order to improve quality,the organization must regularly conduct surveys to evaluate quality improvement. The Tqm process begins with a commitment and exploration stage during which management makes a commitment to total quality assurance.

In the exploration stage,researchers are employed to to explore the needs of internal and external customers. The research must encompass thd products or service that are considered most useful by the customers,the problems of customers with the products,what aspects of the product or service have disappointed customers,what the company is doing right and what the company is doing wrong.

Then benchmarking follows the identification of the needs of customers. Business research must establish qualitative measures that can serve as benchmarks or points of comparison to evaluate future efforts. The research must establish initial measures of overall satisfaction,frequency of customers problems and quality ratings for specific attributes. The third stage in the the total quality management process is the initial Quality improvement stage. during this stage a company must establish quality improvement process within the organization. Management and staff must translate quality issues into the internal language and culture of the organization. The company must establish performance standards and expectations for improvement.

The last stage in the TQM process is the Continuous quality improvement stage. Continuous Quality Improvement (CQI), is sometimes referred to as Performance and Quality Improvement (PQI),Continuous improvement is an ongoing effort to

improve the quality of products, services or processes. Continuous quality improvement requires that management allow its staff to initiate problem-solving without red tapism. Staff should be able to initiate proactive communications with customers. To be successful at CQI,Management must reward performance by recognising individual staff members and groups that work dilligently towards achieving the standards set.

It should be noted that TQM should measure performance against customers' or clients' standards,not standards determined by the company's quality engineers.

SWOT Analysis

SWOT Analysis

SWOT is an acronym used to describe the particular strengths,weaknesses,opportunities and threats that are strategic factors for a specific company. Swot analysis should reflect the corporation's distinctive competencies, the particular capabilities and resources that a firm possesses and the superior way in which they are used and also it should be able to identify the opportunities that the firm is not currently able to take advantage of due to a lack of appropriate resources.

It can be said that the essence of a strategy is to take advantage of opportunities, it is opportunity divided by capacity. An opportunity by itself has no real value unless the company has the capacity to take advantage of that opportunity. It should be noted that even if a strategy is primarily for the purpose of using capacity to take advantage of opportunity,that there may be some weaknesses by the company and this can prevent a strategy from being successful. SWOT can thus be used to take a broader view of strategy through the formula SA= O/(S-W) I.e (Strategic Alternative equals opportunity divided by strength -weaknesses).

Internal Strengths and weaknesses

These are conditions internal to the organization. A strength is a positive condition internal to the organization that may result in competitive advantage or customer benefits. A weakness is a negative condition internal to the organization that may lead to a negative customer value or a competitive disadvantage. Most of these internal strengths and weaknesses are as a result of prior management decisions.

Internal strengths and weaknesses are the controllable factors in a swot analysis meaning that they are under the influence of the manager and can be improved upon,especially the weaknesses.

External Opportunities and threats.

An opportunity is an issue or condition in the external environment of a company that may help it reach its goals. A threat on the other hand is an issue or condition in the company's external environment that may prevent the firm from reaching its goals. When the external opportunities and threats are very strong,they may prompt the organization to evolve its goals and strategies.

External opportunities and threats as the name implies are external to the organization and uncontrollable by the managers of the organization. Companies must continually monitor and respond to its external opportunities and threats if it wishes to grow and remain healthy.

Ge and Mckinsey Matrix (Ge Business screen)

GE/Mckinsey Matrix

With the introduction of the Bcg Growth share matrix,Ge was fascinated with the concept and liked the visual approach depicting the positioning of a firm's businesses on the matrix and they were also looking at concepts and techniques for strategic planning. So they asked Mckinsey and company,a consulting company in the USA,to develop a portfolio approach with a wider dimension than the BCG Matrix. The GE Business screen is a 9cell matrix an is considered an improvement over the BCG Growth matrix because it is a multi-factor portfolio model and it considers many more variables and does not lead to simplistic conclusions like the BCG.

The GE Business Screen recognizes that the attractiveness of an industry can be assessed in many different ways (other than simply using growth rate), and also the market share is included in the factors that affect the business strength and not seen as the only factor that determines a company's competitive position like the BCG Matrix.

Factors that affect industry attractiveness include:

a) Industry size

b) Market profitability

c) Industry growth

d) Pricing trend

e) Overall risk and returns in the industry

f) Opportunity to differentiate products and services

g) Distribution structure

h) Competition intensity

Factors that affect business strength/ Competitive position include:

a) Strengths of assets and competencies

b) Market share

c) Customer loyalty

d) Relative cost position

e) Distribution Strength

f) Customer loyalty

g) Access to finance and other investment resources.

The GE business screen is considered an improvement over the BCG growth share matrix,but it however has its own shortcomings which are:

a) It can get quite complicated and cumbersome

b) It cannot effectively depict the positions of new products or business units In developing industries

c) The numerical estimates of Industry attractiveness and business strengths gives an appearance of objectivity, but they are ij reality subjective judgements that may vary from one person to another.

Stability Strategies

Stability Strategies:

A company may choose to continue its current operations without significant change in the company's direction. A stability strategy is a corporate level strategy,which means it is a strategy formed that determines the overall scope and direction of the corporation as a whole, and the way in which its various business operations work together to achieve particular goals. This type of strategy is particularly popular with small business owners that have found a niche and are satisfied with their success and have no immediate plans to grow their business. It is also popular with firms that are in a mature state of development.A firm is said to be following  a stability strategy if it is satisfied with the same consumer groups and maintaining the same market share, satisfied with incremental improvements of functional performance and the management does not want to take any risks that might be associated with expansion or growth.

When is stability strategy an appropriate strategy:

A) When an industry is facing slow or no growth opportunities

B) When many small business owners follow stability strategy indefinitely

C) When an organization has just experienced a prolonged rapid period of growth and needs to "cool down" in order for its resources and capabilities to build up strength again.

D).When an organization as reached its maturity stage and there is little or no room for growth.

E) The firm’s growth ambitions are very modest and it is content with incremental growth

Implementation of Stability Strategy:

A) Not expanding organization's level of operation

B) Should be a short-run strategy.

Types of Stability strategies:

• Proceed with caution: it is a timeout, an opportunity to rest before continuing a growth or retrenchment strategy. It may be used for a temporary period of time till the environmental situation changes especially if they have been growing too fast in previous years.it may be used by companies as a test strategy before going into a full fledged grand strategy.

• No change strategy: It is a decision to do nothing new, a choice to continue current operations and policies for the forseeable future.if when analysing an environment,it is seen that there are no new significant opportunities and threats or if they are no major strengths and weaknesses within the organization or they are no new competitors or threats of substitute goods, the organization may decide to do nothing.

• Profit Strategy: A profit strategy is a decision to do nothing new in a worsening situation but instead to act as the company's problems are only temporary and attempt to create profits even in a case of declining sales by primarily reducing investments and short term discretionary expenditures. Rather than announcing the company’s poor position to shareholders and other investors at large, top management may be tempted to follow this strategy. Obviously, the profit strategy is useful to get over a temporary difficulty, but if continued for long, it will lead to a serious deterioration in the company’s competitive position.

Recommended Reading

Strategy Planning and Deployment

Hoshin Kanri Strategy Deployment

Balanced ScoreCard

Balanced scorecard

Most companies focus solely on financial measures. This is considered useful but the weakness is that they are entirely historical in nature and they provide short term forecasts than long term ones. Now due to the ever changing environment and increased business competition,a company must now focus on the indicators of future success. The balance scorecard provides a means for the broader focus on the leading indicators.

The balanced scorecard was created by Robert Kaplan as a means of moving organizations away from concentrating solely on financial data. Bsc is a very useful tool which shows a company specific financial and non financial indicators. The balanced scorecard translates a company's strategy into four balanced categories. Which are financial measures, customer and internal business process and learning and growth measures. The financial measures show the past performance of a firm while the remaining three measures drive future financial performance.

The objective of the balanced scorecard is to simultaneously focus on financial information and on creating the abilities In tangible assets required for long term growth.The uses of a balanced scorecard to management includes:

• Clarify and communicate strategy

• Align individual and unit goals to strategy

• Link strategy to the budgeting process

• Get feedback for continuous strategy improvement.

For a firm to effectively develop its strategies,there is a need for a swot analysis which analyses the firm's internal strengths and weaknesses and then analyze its external opportunities and threats. The full meaning is Strength,Opportunities,weaknesses and threats.

Strengths:

The analysis of strengths looks into the internal,it includes the organization's core competencies, or skills the company performs with a clear advantage. A weakness may be something an organization is not particularly good at,compared to its competitors it is clearly seen to be at a disadvantage.

Critical success factors are specific,measurable goals that must be met in order to achieve a firm's strategy. Critical success factors are elements that are key to a firm maintaining a competitive advantage. Managers need to come to a consensus on defining each critical success factors.

After defining the Critical Success Factor, a measurement unit must be assigned to each one. According to Kaplan and Norton,creators of the balanced scorecard, "if you can't measure it,you can't manage it." The measurements must encompass more than just financial measures.

Effective use of Balanced Scorecard

Balanced scorecard should foster a congruence of goals by all aspects of the organization. No set of measurement tools will be successful if each manager is motivated to achieve his or her goals at the expense of other goals. The balanced score card creates an overall view of how the individual contributes to strategic success.

Linking the four categories together with the strategy requires understanding three principles which are : Cause-and-effect relationships; outcome measures and performance drivers and the link to financial measures.

Cause and effect relationship:it is used to analyze case scenarios, here cause and effect relationships are hypotheses using if -then statements.

Outcome Measures and performance drivers:

For the cause and effect chains of critical success factor to be useful,there must be linked to a definite outcome and a performance driver that says how the outcome can be met.Outcome measures are based on historic indicators of success such as profitability, market share employee turnover,customer retention.

Performance drivers are leading indicators that are specific to the strategy chosen by a particular business unit for example new patents by research companies,cycle time by manufacturing companies and so on. Performance drivers work hand in hand with outcome measures because while performance indicators show only how to perform in the short term,outcome measures indicate whether the strategy is successful in the long term.

It is necessary that any initiative a company embarks on should be linked to the financial outcome measures to be able to assess the progress of the new initiative.

Non Financial Balanced score card measures.

The three other categories are non financial measures, to drive financial performance,the balanced scorecard requires assessment of customer,internal business process and learning and growth measures.

Customer Measures

Customers are very essential to a company,they are the company's source of revenue and without them there is no end to which the company produces its products. The customer perspective must include specific outcome measures and specific performance drivers. Normally it is not feasible for a company to target everyone without losing its focus on its core customers so therefore a company must shape performance drivers which can also be called value propositions that are specific to market segments and their strategy.

Primary customer outcome measure include:

Market share

Customer Acquisition

Customer Satisfaction

Customer Retention

Customer Profitability

Market share:

It is a proportion of customer's that use a company's product or service out of the possible number of users in that particular market share. Companies hope to increase their market share to the point where it does not become a burden,increasing market share can be a burden if the company targets everyone including the non profitable customers,and it becomes more costly than beneficial to service this customers thereby leading to a regression in profits.

Customer Acquisition:

Companies with a growth strategy would focus strongly on customer acquisition measure,but all companies need to add new customers because customer retention is never 100%. Customers might decide to leave and go to competitors if they are unsatisfied,and to maintain sales volume,a company should always look to add more customers to offset the customers lost.

Customer Satisfaction:

Customer satisfaction is a measure of how well the company has been able to meet the needs of the customers. Customer satisfaction is important because if a company's customers remain consistently unsatisfied,they would move to its competitors to seek satisfaction.

Customer Retention.

Customer retention is the policy a company adopts to retain its customers, some policies may include discounts,periodic sales, partnerships, distributors. For retailers, some customer retention data can be gained from credit card receipts. A major source of retention data for some retailers are loyalty programs.

Customer Performance drivers.

Performance drivers of customers include:

• Delivery performance

• lead time

• Response time

• Customer service.

Internal Business Process Measures

The internal business process is a link between the financial and customer measures,they are processes the company uses to achieve customer and shareholder value. Internal business process go beyond simple financial variance measures to include output measures such as quality,cycle time,yield,order fulfillment,production planning, throughput and turnover.

Learning and growth measures

Learning and growth measures comes after a company identifies its financial,customer and internal process strategic needs. The company would need to achieve new capabilities through learning and growth if it wishes to stay competitive and achieve its goals in the ever changing environment. Although the learning and growth measure is the last step designed by a balanced score card,it would be the first step performed because they are performance drivers for the desired strategic outcome.

Ansoff Matrix

Ansoff Matrix

igor Ansoff was a Russian/American mathematician who

applied his work to the world of business.To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's

present and potential products and markets

(customers). Igor examined ways in which an organization could grow through the products and the market and he came up with four possible combinations which are:

Market penetration, product development, market development and diversification.

Market Penetration:

Market penetration strategy seeks to increase the market share of present products and services in present markets through greater marketing efforts. It can be achieved by increasing the number of sales person and advertising expenditures and offering discounts or sales promotion. The market penetration strategy takes place at the maturity stage of a product or service,it is also used during a period of decline in market share of competitors while total industry sales have been increasing

Market development:

Market development as the name implies involves seeking out new geographical locations to introduce products or services. Globalization is bridging the gap between companies and new emerging markets, the climates for international markets is becoming more favorable. Market development is used when nee channels of distribution are available that are reliable,inexpensive and of good quality.

Product development:

Firms that adopt this strategy seek to improve sales by modifying present products or services. A lot of research is usually put into the development of new products, and as the development of a new product is a project which would consume time and money, the organization must carry out a feasibility study on if the new products would be viable or not. A firm that has successful products in their maturity stage can attract satisfied customers to try new (improved) products as a result of their positive experience with the organization's present product or service.

Diversification:

Diversification requires both product and market development and as such is considered the most risky of the four growth strategy. The risk there is that an expansion of the market and products might lead to producing goods that are not within the organization's core competency. According to David (1991) There are three types of diversification strategies which are : concentric, horizontal and conglomerate. The aim of a diversification strategy is to diversify so as not to be dependent on any single industry.It is mostly useful when organizations are in the decline stage.

The strategy of adding new,unrelated products or services for present customers is known as horizontal diversification. Adding new unrelated products is called a conglomerate diversification. It is used in an industry that is experiencing declining annual sales and profits.

Retrenchment strategies

Retrenchment strategies:

Retrenchment strategies are pursued by companies with a weak competitve position in some or all of its product lines resulting into poor performance. These strategies are undertaken to improve performance and so there is a pressure for management to improve performance. There are lots of turn around strategies management can adopt,let's analyse them below.

Finding a propitious niche

Finding a propitious niche:

A niche is a need in the market place that is currently not satisfied. What then is a propitious niche? A propitious niche is an extremely favourable niche so well suited to the firm's internal and external environment that other companies are not likely to compete to satisfy that marketplace. A propitious niche can be called a "strategic sweet spot",such niches are only large enough for one firm to fill and once a firm fills it,it is not profitable for competing firms to come into the market. To find such a niche,a firm must always ve on the look out for a strategic window because it is on a first come, first serve basis,it is important for a firm to be the first that seeks to fulfill the need of the market place.

One company that successfully found a propitious niche was Frankj. Zamboni & company,the manufacturer of the machine that smooth the ice skating rinks, Frank Zamboni invented the unique tractor like machine in 1949 and no one has found a substitute for what it does. The machine has now become so important because before its existence,people had to clean and scrape the Ice by hand to prepare the surface for skating.

The most delighted being the hockey fans who just sit and watch the Zamboni slowly drive up and down the ice rink,turning rough scraped ice into a smooth mirror surface. So as long as Zamboni's company was able to produce the machines in the quantity and quality desired at a reasonable price, it was not worth another company's while to go after Frank Zamboni's propitious niche.

Learn more about Propitious Niche

Portfolio Analysis

Portfolio Analysis

Portfolio analysis seek to answer two questions which are "how much of our time and money should we spend on our best products and business units to ensure they continue to be successful" and "how much of our time and money should we spend developing new costly products,most of which will never be successful?". In portfolio analysis,top management views its product lines and business units as a series of investment which it expects to make a profitable return from.

Two of the popular portfolio techniques are BCG Growth-share matrix by boston consulting group and GE/Mckinsey matrix (Developed for General electric by Mckinsey).

Advantages of portfolio analysis

1) it helps in the evaluation of each of the corporation's businesses individually by the top management and it enables them to set objectives and allocate resources for each one of them.

2) It raises the issue of cash-flow availability for use in expansion and growth

3) it stimulates the use of externally generated data to supplement management's judgement.

Limitations of portfolio analysis.

1) Defining product or market segment is difficult

2) it suggests the use of standard strategies that may be impracticable.

3) It provides an illusion of scientific rigor,when in reality positions are based on subjective judgements.

4) It is not always clear what makes an industry attractive or where a product is in its life cycle.

Porter's Five force model.

Porter's Five force model.

Porter in his five force model of industrial competition,describes the competitive forces of 'shopping' as an industry. This model as become very popular and widely used in strategic management. According to him, by analysing the five forces,one can assess the forces driving competition in a specific industry and evaluate the odds of a firm's successful entry and competition in that industry. This would make it possible for an intending entrant to measure the attractiveness for entry or perhaps the need to exit,analyse the competitive trends in the market and able to plot future strategies.

The five forces according to porter are:

1) Threat of entry: 

Threat of entry describes the risk that potential competitors will enter the industry. It should be known that as more firm's enter an industry,it depresses overall profit for the industry. This is due to the fact that as additional capacity comes into the industry in the form of the new entries, already existing firms may lower prices to make entry appear less attractive to the potential new competitors,which would in turn reduce the overall industry's profit potential,especially in industries with slow or no growth potential.

Secondly,the threat of entry by additional competitors may force incumbent firms to spend more to satisfy their existing customers. This increase in investments by incumbent firms in the process of value creation further reduce an industry's profit potential if prices cannot be raised.

Entry barriers which are advantageous for incumbent firms,are obstacles that determine how easy a firm can enter an industry. Some of the sources of entry barrier includes

a) Economics of scale

b) Network effects

c) Capital requirements

d) Government policies

e) Credible threat of retaliation

2) The power of Suppliers

The bargaining power of suppliers captures pressures that industry suppliers can exert on an industry's profit potential.This bargaining power of suppliers can reduce the firm's ability to obtqin superior performance and profit potential because powerful suppliers can raise the cost of production by demanding higher prices for their inputs,or by reducing the quality of the input factor or service level delivered.

The relative bargaining power of suppliers are high when

a) The supplier's industry is more concentrated than the industry it sells to

b) Suppliers do not depend heavily on the industry for a large portion of their revenues

c) Suppliers offer products that are differentiated

d) They are no readily available substitutes for the products or services that the suppliers offer

e) Suppliers can credibly threaten to forward integrate into the industry.

3) Power of Buyers

Buyers are the consumers or customers of an industry, the power of the buyers concerns the pressure an Industry's customers can put on the producer's margins in the industry by demanding a lower price or higher product quality. When buyers obtain price discounts,it reduces a firm's top line revenue,and when they demand higher quality and more service,it generally raises production costs.

The power of suppliers is high when

a) They are few buyers of the products and each buyer purchases large quantities relative to the size of a single seller.

b) The industry's products are homogenous or undifferentiated commodities.

c) Buyers face low or no switching costs

d) Buyers can credibly threaten to backwardly integrate into the industry.

4) The Threat of Substitutes:

Substitutes meet the same basic customer needs as the industry's product but in a different way. The threat of substitutes is that the current customers may defect to products of competing firms that are close substitutes and are produced to tend to the same needs. A high threat of substitutes reduces industry profit potential by limiting the price the industry's competitors can charge for their products and services. The threat of substitutes is high when:

The substitute offers an attractive price-performance trade off

The buyer's cost of switching to the substitute is low.

5) Rivalry among existing competitors:

Rivalry among existing competitors describes the intensity with which companies within the same industry jockey for market share and profitability. The other four force discussed earlier affects the degree of competition or rivalry among firms. The stronger the forces,the stronger the expected competitive intensity,which in turn limits the industry's profit potential. Some companies might use a strategy of lower prices to attract customers from rivals. Alternatively,competitors can use non-price competition in terms of product features and design,quality,promotional spending and after sales service and support.

The intensity of rivalry among existing competitors is determined largely by the following:

a) Competitive industry structure

b) Industry growth

c) Strategic commitments

d) Exit barriers.

BCG GROWTH-SHARE MATRIX

BCG GROWTH-SHARE MATRIX:

The BCG Growth share matrix was developed by the boston consulting group,it is the simplest way to portray a corporation's portfolio of investments. Each of the corporation's product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share. A company's relative competitive position is defined as its market share in the industry divided by hat of the largest other competitor,so a relative market share above 1.0 belongs to the market leader. The business growth rate is the percentage by which sales of a particular business unit classification of products have increased.

A product line or business unit must have a high competitive position to ensure that it would have the dominant position needed to be a star or cash cow. A product line having a low relative competitive position of say 1.0 and below has a "dog" status.

The BCG Growth share matrix has a lot in common with the product life cycle. As a product moves through its lifecycle,it is classified into the following:

• Question marks: They are sometimes called "problem child" or "wildcats". They have a small relative market share or competitive position in a high growth market. They are mostly new products with the potential for success,but require a lot of cash for development. To enable the product step up to become a star,these products must be funded by a more mature product which usually are the cash cows.

• Stars:Stars are market leaders, they are typically at the peak of their product life cycle. Stars generate cash that contributes positively to company's profit, but because the market is growing rapidly,they require investments to maintain their lead.

• Cash cows: They bring in more money than is needed to maintain their market share. In this declining stage of their life cycle,these products are milked for cash that would be invested in new question marks.

• Dogs: It is a business unit that has a small market share in a mature industry.A dog may not require substantial cash,but it ties up capital that could be better deployed elsewhere. According to the BCG Growth share matrix, dogs should be either sold or managed carefully for the small amount of cash they can generate.

The BCG Growth-share matrix is a very well known portfolio concept with advantages such as being quantifiable,easy to use,easy to remember. It also has some negative criticisms and shortcomings,which include:

a) The link between market share and profitability is questionable,since increasing market share can be very expensive.

b) The use of highs and lows to form four categories is too simplistic

c) The approach may overemphasize high growth since it ignores the potential for a declining market.

d) Growth rate is only one aspect of industry attractiveness.

e) Product lines or business units are considered only in relation to one competitor: the market leader.

f) Market share is only one aspect of overall competitive position.

Value chain analysis

Value chain analysis

The term value chain was first used by Micheal porter in his book "Competitive advantage: creating and sustaining superior performance" (1985). A value chain is a linked set of value creating activities that begins with basic raw materials from suppliers,moving on to a series of value added activities involved in producing and marketing a product or service and ending with distributors getting the final goods into the hands of the ultimate consumer.

Value chain analysis describes the activities within and around an organization and relates them to an analysis of the competitive strength of the organization. The value chain analysis helps to evaluate which value each particular activity adds to the organizations products or services. Porter states that a" firm's value chain and the way it performs individual activities are a reflection of its history,its strategy,its approach to implementing its strategy and the underlying economics of the activities themselves". Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage.

Porter identifies two major categories of business activities which are primary activities and support activities. Primary activities are directly involved in transforming inputs into outputs and in delivering after sales support. The primary activities can be grouped into five main areas which are:

a) Inbound logistics: This involves material handling and warehousing.

b) Operations: This are processes involved in transforming inputs into outputs.

c) Outbound logistics: Deals with order processing and distribution.

d) Marketing and sales: Involves communication,pricing and channel management

e) Service: which covers installation,repair and parts.

Support activities supports primary activities,and they are:

Procurement: Procurement is the acquisition of goods, services or works from an outside external source.

Technology development: This are the know how,procedures and technological inputs needed in every value chain activity.

Human resource management: Human resource management ( HRM ) is the area of administrative focus dealing with an Organisation's employees.It involves the selection,placement and promotion , appraisal, management,development, rewards and labour /employee relations.

Firm infrastructure: Which includes the systems for planning,finance,quality,information management, accounting,legal and government affairs.

John Shank and V.Govindarajan (1993) state that "the value chain for any firm is the value-creating activities all the way from basic raw materials sources from component suppliers through to the ultimate end-use product delivered into the final consumers hands.

Industry chain value analysis: The value chain of most industries can be split into two segments which are the upstream and downstream segments. An industry can be analyzed in terms of profit margin available at any point along the value chain,for example in the auto industry,there includes manufacturing,lease financing,auto insurance,after sales services along the value chain.In analyzing a value chain,it should come to notice of the analyst that there is usually an area where the company would derive most of its strength from and where its primary activities lie, it might be a product or a specialty service in which the company has a competitive advantage. This area of expertise is called the company's center of gravity.

A company's center of gravity is part of the chain where its primary activities lie. According to Gallbraith,a company's center of gravity is usually the point at which the company started. This is true because after a firm establishes itself and start operations of a few products or service,it strifes to gain a competitive advantage,and when it does so,it then moves forward or backwards along the value chain in order to reduce costs,guarantee access to key raw materials or to guarantee distribution.

Corporate value chain analysis:

Each corporation has its own internal value chain of activities. Porter proposed that a manufacturing firm's primary activities usually begin with inbound logistics (raw material, handling and warehousing) then go through an operations process in which a product is manufactured,and continue on to outbound logistics (warehousing and distribution), to marketing and sales and finally to service (installation,repair and sales of parts).

Support activities such as procurement,human resource management, technology development and firm infrastructure ensure that primary activities are carried out both effectively and efficiently.

PESTEL FRAMEWORK

STEEP ANALYSIS

A firm's external environment consists of all factors that can affect its potential to gain a competitive advantage. It is advisable during strategic planning to analyze the external environment In order to mitigate threats and leverage opportunities. To understand how this external forces affect the business,one must know the source and nature of these forces,for example external forces in the general environment from where the natural environment and economic environment can be found is often out of the direct control or influence of the company,but the task environment are the ones that a business has some influence over.

The pestel analysis is a useful tool for understanding market growth or decline, ans as such the position,potential and direction of a business. The analysis examines each of the factors (which would be discussed later) on the business. The results can be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategy plans (Byars,1991). Kotler (1998) claims that Pestel analysis is a useful strategic tool for understanding market growth or decline, business position,potential and direction for operations. The use of pestel analysis can be seen effective for business and strategic planning,marketing planning,business and product development and research reports.

The pestel model groups the forces in the firm's general environment into six segments which are : Political, economic, socio-cultural, technological, ecological, and legal.

Political-Legal Factors

These two factors are usually grouped together in the analysis since they are closely related. The political environment describes the actions,processes and policies of government bodies that may influence the decisions and behaviour of firms.The legal environment captures the official outcomes of political processes as manifested in laws,mandates,regulations and court decisions.These factors might have a direct influence on a firm's profit making potential. Industry's tend to look out for regulatory changes because they may make or mar firms within that industry. That is why some firms lobby so that new laws being made would be favourable to them. Of recent,governments tend to deregulation as a strategy for creating new entrants into industries for increased competition,innovation and value for money spent by consumers or customers.

Some of the variables that affect the political-legal environment include:

a) Form of government

b) Political ideology

c) Tax laws

d) Stability of government

e) current legislations

f) Future legislations

g) Government policies

h) Trading policies

I) Foreign policies

j) Legal system

k) Terrorist activities

l) Immigration laws

m) Global warming laws.

n) home market lobbying

o) International pressure groups.

Economic Factors

Economic factors are largely macroeconomic ,affecting economic wide phenomena There are five major factors that can influence a firm's strategy:

Growth rates: The growth rate is the measure of the rate of change that a nation's domestic product goes through from one year to another. The growth rate indicates the stage of the business cycle the economy is in,if it is in a stage of boom or recession.

In a periods of boom,the economy the company usually witnesses increased demand for products, and decreased competition . During the period of boom,companies take on expansionary strategies in order to satisfy increasing demand and maximize the increased profit making potential the economy presents to it.The reverse is the case in recessionary periods.

Interest rate: An interest rate is the rate at which interest is paid by a borrower(debtor) for the use of money that they borrow from a lender (creditor). This is another key macroeconomic factor,and companies need to track its interest rates for its capital structure decisions and also investment decisions

Levels of Employment: The state of the economy directly affects the level of employment. In a period of boom,unemployment is increasingly low and skilled human capital becomes a scarce and more expensive resource. In periods of recession,unemployment is high and skilled human capital becomes abundant and this lowers the wages.

Price stability: price levels of goods and services frequently change,so this is one thing companies must learn to deal with.for example if it is a multinational firm with foreign branches and in the countries of the foreign branches,the general price level rises and is sustained and constant. If the price of the good for some reason does not rise,then the value of the profit would be way lower than usually when compared with the head office and this might reduce the profits earned by the company.

Currency Exchange Rates:The currency exchange rate determines how many dollars one must pay for a unit of foreign currency.The currency exchange rate is very important to companies because a company needs to gauge this during international transactions so as to maximize profits.

Socio-cultural Factors

Sociocultural factors encapsulates a society's cultures,norms and values. Sociocultural factors are not always the same,they differ across groups,so there is a need to monitor socio cultural changes amongst groups and how it can affect the strategic position of the firm. Take for example in US there is a shift in the demand of healthy food,because of the obesity issues prevalent there,consumers are starting to demand healthy lines of food,so this becomes an opportunity or threat to fast food companies such as McDonalds, pizzahut, Domino's and so on.

Demographic trends are also important trends in external analysis,because it captures characteristics such as age,gender,ethnicity,family size religion,socioeconomic class to mention a few. Developing Countries would continue to have more young people than old,but the reverse would be the case in industralized nations. For example the economic bulge in the U.S population caused by the baby boom in the 1950's continues to affect market demand in many industries.

Variables that affect the socio-cultural environment includes:

a) Lifestyle changes

b) Career expectation

c) Consumer activism

d) Media views

e) law changes affecting social factors

f) Major events and influences

g) Buying access and trends

h) Ethnic/ religious factors

I) Advertising and publicity

Technological Factors

it covers the application of knowledge to create new processes and products. some of the recent innovations in process technology include lean manufacturing, six sigma quality ad biotechnology.

The nano technological revolution which is just beginning,promises major upheaval for a vast array of industries ranging from tiny medical devices to new age materials for earthquake resistant buildings.

Some of the variables affecting Technological factors include:

a) Total government spending for R&D

b) Total industry spending for R&D

c) Focus of technological efforts

d) Competing technological developments

e) Maturity of technology

f) Manufacturing maturity and capacity

g) Patent protection

h) New products

I) Productivity improvements through automation

J) Internet availability

k) Consumer buying mechanisms or technology.

Ecological Factors

Ecological factors deals with broad environmental issues such as the natural environment,global warming and sustainable growth. There is an interdependent relationship among organizations and the natural environment. Managing these resources in a responsible and sustainable way directly influences the continued existence of human societies and organizations we create. Managers can no longer separate the business worlds,they are inextricably linked.

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility

The concept of corporate social responsibility proposes that a private corporation has responsibilities to the society that extends beyond making profit. A company should be aware that its strategic decisions not only affects the company but the society at large. A decision to retrench workers,may seem a good strategy to save the company from crisis,but there is also a cost to the communities and families that are in the workforce. Take another example which is the discontinuing of a product,there might customers who are so dependent on the product and by the action of the company such products would no longer be available to them. Such situations raise questions of appropriateness of certain missions,objectives and strategies of business corporations.

RESPONSIBILITIES OF A BUSINESS FIRM

In general a business has some social responsibilities,the question then is how many of the must be fulfilled to still keep the firm profitable. Milton friedman and Archie carrol offer two contrasting views on the responsibilities of of business firms to society.

Friedman's Traditional View of Business Responsibility

Milton friedman argues against the concept of social responsibility, he says a business who acts in response to social factors by cutting prices to prevent Inflation or by hiring more hands than needed to help combat unemployment or making extra expenditures to curb the pollution rate according to friedman is spending the shareholder's money to fulfill a general social interest. He believes that this practice may later turn around to bite the society the company is trying to make better,because by taking on these social costs,the business becomes less efficient and there is a continuous wastage of money which may reduce the profitability of the business.

Friedman thus referred to the social responsibility as a "fundamentally subversive doctrine" and stated that "There is one and only one social responsibility of business- to use its resources and engaging in activities designed to increase its profits as long as it stays within the rules of the game,which is to say,engages in open and free competition without deception or fraud." He also says that "in a free enterprise,private- property system a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires,which generally will be to make as much money as possible while conforming to the basic rules of the society,both those embodied in law and those embodied in ethical custom."

Please note that although friedman sees maximization of profit as the ultimate aim of a business,he still advocates that managers should seek to maximize profits in an ethical way,free of the use of fraud and deception.Business managers should engage in open competition, Price collusion would be a moral wrong for friedman.According to friedman,business managers ought to follow the law and they ought to obey the ethical customs embedded in society.

Carroll's Four Responsibilities of Business

They have been many debates to the validity of friedman's reasoning of corporate social responsibility. According to william J Bryon, Distinguished professor of Ethics at georgetown university and past president of catholic university of America, he believes that profits are only a means to an end,not an end in itself. Bryon contends that to maximize profits cannot be the sole purpose of a business. He compares profits to food and says that just as a person needs food to survive and grow,so does a business corporation need profits to survive and grow.

Carrol proposes that managers of business organizations have four responsibilities which are economic,legal,ethical and discretionary.

Economic responsibilities: The economic responsibilities of a business enterprise is to produce goods and service that creates value to customers and provides profit to pay off creditors and render returns to the company's shareholders In the form of dividends.

Legal responsibilities: They are laws by the government of the country in which the business operates and also the laws of its foreign branches or subsidiaries which the business is expected to obey. For example,Us business firms are required to higher and promote people based on their credentials rather than to discriminate on non-job related characteristics such as race,gender or religion.

Ethical Responsibilities: Ethics are a system of moral principles and a branch of philosophy which defines what is good for individuals and society.An organizations management are expected to be morally upright and follow generally held beliefs about behaviour in a society.

Discretionary Responsibilities: They are the purely voluntary obligations a corporation assumes.Examples include providing day-care centers,training the hard-core unemployed and philantropic contributions.

Carroll lists these four responsibilities in order ot priority. He believes that a business firm must first make profits to satisfy its economic responsibility,it must hen follow the laws to continue its existence which would be fulfilling its legal responsibilities. There is evidence that companies found guilty of violating laws have lower profits and sales growth after conviction. To this extent there is a similarity between friedman's view and carroll's,but carrol goes a bit further by including two more responsibilities for firms

It is believed that the last two responsibilities are the social responsibilities and the should be followed after fulfilling its basic responsibilities which are the first two.A firm can fulfill its ethical responsibility by taking actions that the society tends to value but as not been put into law. Carroll suggests that if businesses fail to acknowledge ethical or discretionary responsibilities, that the government would would make laws regarding these responsibilites and make them legal responsibilities. As a result,the organization may have greater difficult in earning a profit than it would have if it had voluntarily assumed some ethical and discretionary responsibilities.

Friedman's position on social responsibility appears to be loosing traction with business executives. For example a 2006 survey of business executive across the world by McKinsey& company revealed that only 16% felt that businesses should focus solely on providing the biggest possible return to investors while obeying all laws and regulations , contrasted with 84% who stated that business should generate high returns to investors but balance it with contribution to the broader public good.

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

Role of Board of Directors

A corporation is a company or group of people authorized to act as a single entity. In a corporation different parties contribute capital, labour and expertise for their mutual benefit. The shareholder provides funds for running the company without taking responsibilities for the operation of the business, the management shoulders the responsibility of the smooth running of the business without being responsible for personally providing the funds.To make this possible, laws have been passed that give shareholders limited liability and, correspondingly, limited involvement in a corporation’s activities. That does not mean that the shareholders do not have any say in the business, because they possess the right to elect directors who have a legal duty to represent the shareholders and protect their interests. This being said, the directors run the company on behalf of the shareholders, they establish basic corporate policies and ensure that they are being followed.

The Board of directors set the corporate and strategic goals of the company and should ensure they make decisions that affect positively the long term performance of the company. So it can be said that that the corporation is fundamentally governed by the board of directors overseeing top management, with the concurrence of the shareholders and with the interest of the shareholders in mind. Corporate governance then refers to the relationship among this three groups in determining the direction and performance of the corporation.

In the past, there has been the issue of conflict of interest, between the directors and shareholders. The directors might just be looking to fill their pockets and feather their own nests without making the interest of the shareholders their number one priority. So they came about inside board members who run the company on a day to day basis and are involved in the operations,and the outside board members whose sole purpose is to monitor and provide guidance to the top management. But this was not enough as outside board members often lacked sufficient knowledge,involvement and enthusiasm to do an adequate job. So people started clamouring for the government to demand accountability by the board of directors.

Now lets look at some of the responsibilities of the board of directors

a) Setting corporate strategy,overall direction,mission or vision

b) Hiring and firing the CEO and top management

c) Controlling,monitoring or supervising top management

d) Reviewing and approving the use of resources

e) Caring for shareholder interests.

A survey by the national association of Corporate Directors,in which US CEOs reported that the four most important issues boards should address are corporate performance, CEO succession,strategic planning and corporate governance. Directors must ensure management's adherence to laws and regulations,such as those dealing with issuance of securities,insider trading and conflict of interest situations. In the legal sense of it,directors are charged with directing the affairs of the corporation and not managing it but they often shoulder both responsibility.

A 2008 global survey of directors by McKinsey & Company revealed the average amount of time boards spend on a given issue during their meetings.

• Strategy (development and analysis of strategies) 24%

• Execution (prioritizing prorams and approving mergers and acquisitions) 24%

• Performance management (development of incentives and measuring performance) 20%

• Governance and compliance (nominations, compensations,audits) 17 %

• Talent management 11%

ROLE OF THE BOARD OF DIRECTORS IN STRATEGIC MANAGEMENT

The only role of the oard of directors in strategic management is to carry out three basic tasks which are:

• Monitor: The board of Directors set up committees to monitor developments inside and outside the corporation,bringing to the notice of management developments it miggt have overlooked.

• Evaluate and influence: The board of directors can examine and influence to a great extent managements decisions and actions,throught their expertise they may present better course of action for management to take,and advise managements on projects currently being undertaken.

• Initiate and determine: A board might help in the formation of a company's mission and specify strategic options to its management.

DEFINITIONS OF CORPORATE GOVERNANCE:

Dayton (1984) as cited in Godwin(2006) defines corporate governance as the process,structures and relationships through which the board of directors oversee what executives do.

Robins and Coutler (2005) note that the system used in corporate governance is to ensure that the interest of the corporate owners are protected. The confederation of indian industry (CII) (1997) states that corporate governance deals with laws,procedures,practices and implicit rules that determine the company's ability to take managerial decisions via its claimants in particular its shareholders,creditors ,the state and employees.

Then corporate governance as been defined has a system of law and sound approaches by which

corporations are directed and controlled focusing on the internal and external corporate structures

with the intention of monitoring the actions of management and directors and thereby, mitigating agency risks which may stem from the misdeeds of corporate officers.

Corporate Governance Principles and Codes

They are various guidelines and legal requirements for corporate governance in each country in the world,for example the principles of corporate governance set by the organization for economic cooperation and development includes the following:

• Promotion of transparency and efficiency in the market to be in harmony with the rule of law.

• Guarantee and protect the rights of the shareholders

• Ensure equity in the treatment of shareholders

• Recognition of the rights of shareholders as provided by the law.

• Timely and accurate disclosure of information on all matters relating to the company.

• The strategic guidance of the company and the effective monitoring of management by the board of directors as well as board's accountability to the company and its shareholders.

AGENCY THEORY VS STEWARDSHIP THEORY

what brings about this is the question "Do directors put themselves or the firm first?. Lets now briefly analyse each theory.

AGENCY THEORY: Agency theory is concerned with analyzing and resolving two problems that occur in relationship between principals and their agents,which in this case principals refer to owners / shareholders and agents refers to top management.

1) The agency problem arises when the desires or objectives of the owners and the agents conflict,ie the agents are looking to pursue their own interests at the expense of the principal or in this case shareholders.

2) Risk sharing problem that arises when the owners and agents have different attitudes towards risk.Executives may not select risky strategies because of the fear of loosing their jobs If they fail.

There is an increase of likelihood of occurrence of these problems if there a large number of dispersed shareholders,ie there is no concentration of a large percentage of shares with a single shareholder. Also there are risks of occurrence when the directors are too familiar with management and the concentration of directors is in inside directors.

To combat these problems,agency theory suggests that top management have a significant degree of a ownership in the firm and have a strong financial stake in its long term performance. In support of this argument,research indicates a positive relationship between corporate performance and the amount of stock owned by directors.

STEWARDSHIP THEORY: stewardship theory believes that management can be motivated to act in the best interest of the corporation rather than their own self interest,through avenues such as achievement and self actualization. Stewardship theory argues that senior executives over time tend to view corporations as an extension of themselves.

The relationship between the board and top management now becomes that of principal and steward and not principal and agent.

In contemporary organizations,some of the commonly cited principles of corporate governance include:

• Right and equitable treatment of shareholders

•  Recognition of legal,ethical and other obligations of the corporation

• Maintaining and observing integrity and ethical behaviour by the corporate management and directors.

•  Disclosure and transparency of the roles and responsibilities of the board and management to provide for shareholders some level of accountability and transparency.

• Financial,internal control and independence of auditors.

• Objective procedures for selecting board members

• Review of exexutive compensation

• Appropriate dividend policy

• Commitment to strategic success of the corporation.

IMPACT OF SARBANES-OXLEY ACT

The U.S congress passed the Sarbanes-oxley act in june 2002 as a result of the corporate scandals uncovered since 2000. In implementing the sarbanes-oxley act, the U.S Securities and Exchange commission (SEC) required in 2003 that a company disclose whether it has adopted a code of ethics that applies to the CEO and to the company' principal financial officer.The SEC also requires that the audit,nominating and compensating committees be staffed entirely by outside directors.

The new york stock exchanged has also backed this up by requiring companies to have a nominating governance committee composed entirely of independent outside directors. Also NASDAQ rules require that nominations for new directors be made by either nominating a committee of independent outsiders or by a majority of independent outside directors.