Historically attention was paid to the subject following the collapse of Savings and Loan companies in USA in the mid 1980’s and the SEC of USA taking a tough stand on the same. It is ironical that once again it was the US which brought in Sarbanes Oxley Act and along with it very stringent measures of Corporate Governance. In passing, we may add that there is no corresponding legislation in India. Later, Adrian Cadbury report was an important milestone, which spelt out 19 best practices called the “Code of Best Practices”, which the companies listed on the London Stock Exchange, began to comply with. Some of those guidelines applicable to the Directors, Non-executive Directors, Executive Directors, and others responsible for reporting and control are as follows; Relating to the Directors the recommendations are: The Board should meet regularly, retain full and effective control over the company and Continue reading
Strategic Management Concepts
Porter’s Generic Strategies – Focus Strategy
Focus Strategy is the strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. By selecting carefully a segment and meeting the needs of that segment better than competitors who target more broadly defined segments, companies can gain competitive advantage. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. It is these differences that result in a segment being poorly served by the broad-scope competitor. The firm that focuses on cost may be able to outperform the broad-based firm through its ability to strip out frills not valued by the segment. Alternatively, the product or service can be differentiated, taking into account the unique needs of the segment. A focus strategy can be pursued using either a Continue reading
Role of Environmental Analysis in Strategy Formulation
A great deal must be learned about an organization so that strategy formulation decisions can be based upon appropriate information. It almost goes without saying that strategists must understand all there is to know about the internal operations of an organization before strategy can be effectively formulated and implemented. The external influences acting on the firm also must be analyzed, documented, and understood to mange and implement the strategies effectively. An organization’s environment consists of two parts: The industry within which it operates (for multi-business firms, the industry is usually considered the activity’ in which the firm generates the majority of its revenue), and other environmental dimensions–economic, political/legal, social and technological. Very often financial analysis will bring to light several financial strengths and weakness that are indicative of strategic or operating capabilities and problems within the various strategy levels and within functional areas. Financial analysis is typically followed by internal Continue reading
Historical Perspective of Corporate Governance
The seeds of modern corporate governance were probably sown by the Watergate scandal in the United States. The global movement for better corporate governance progressed in fits and starts from the mid-1980s up to 1997. There were the odd country-level initiatives such as the Cadbury Committee Report in the United Kingdom (1992) or the recommendations of the National Association of Corporate Directors of the US (1995). It would be fair to say, however, that such initiatives were few and far between. And while there were the occasional international conferences on the desirability of good corporate governance, most companies — both global and Indian knew little of what the phrase meant, and cared even less for its implications. More recently, the first major stimulus for corporate governance reforms came after the South-East and East Asian crisis of 1997-98. This was no classical Latin American debt Continue reading
Linkage Between Business Models and Innovation
The question of what a business model is often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. This is normal, since the business model is about how an organization makes money, which is a manager’s job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of one’s business model and make important business model decisions. Alexander Osterwalder has come up with the 9 building blocks approach to describe business models. This approach has the characteristics of any other type of model (e.g. in architecture or engineering). It is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without Continue reading
Goal Congruence in Management Control Systems
Each individual has his personal goals. He joins an organization to achieve then goals. The personal goal may just be to get a job that assures safety and monetary rewards. The organization, through its top management, sets for itself pals that are desired to achieve. At times there is a conflict between individual goals and organizational goals. Such conflict is more clearly evident in nonprofit organizations such as research and development institutions, and educational institutions. Top management wants these organizational goals to be attained, out other participants have their own personal goals that they want to achieve. These personal goals are the satisfaction of their needs. In other words, participants act in their own self- interest. Here individuals may grow bigger than the organization and this may lead to goal conflict. The control system should be designed so as to integrate the personal goals with organizational goals, and thereby achieve Continue reading