Some of the frequently asked exam questions on corporate philosophy and objectives of a company are as follows:
Q.1. Who formulates an enterprise’s objectives?
Ans. All organisations have objectives, at least at one point in time. Enterprise objectives are the goals the enterprise seeks to accomplish through its operations. Once a manager realises the importance of achieving some results, he begins to formulate objectives consciously or unconsciously.
Initially he becomes aware of objectives in a general sense. As time goes on, an enterprise becomes relatively large and well established and the manager thinks and decides to formulate general objectives in written form.
As regards the origin of objectives in a firm, two theories come to play: the ‘trickle up’ and ‘trickle down’ approaches. The ‘trickle up’ theorists believe that employees’ objectives are somehow summed up and thus become the enterprise’s objectives. The opposite position with which the management scientists agree is that managers formulate the objectives and they ‘trickle down’ to the employees.
Q.2. What are the factors influencing the choices of enterprise’s objectives?
Ans. The choices of objectives are influenced by three basic factors:
1. The Realities of the External Environment and External Power Relationships:
These refer to the forces in the environment. The managers may wish to maximise profits but must modify this objective because of certain legislations and regulations relating to Environmental pollution, Monopolies and Restrictive trade practices, consumer protection, etc.
Trade unions may require higher than market wage rates and the like. Competitors may sell their products or services at unrealistically low prices and spend excessive amounts on advertising. Suppliers may become monopolised and charge exorbitant prices.
2. The Realities of the Enterprise’s Resources and Internal Power Relationships:
They restrain the managers in setting objectives even if the organisation has internal resources to some extent. The political realities of management such as support or otherwise of the owners, employees, lower and middle level professional groups, and others determine the choices of objectives.
3. The Value Systems of the Top Executive:
The values and preferences of the managers that they develop out of their education and experience influence the choice of objectives. These values are essentially a set of attitudes about what is good or bad, desirable or undesirable.
In addition to the above, some other characteristics listed below affect the choice of objectives:
Some executives believe that, to be successful, a firm must be aggressive in the market place.
Some executives believe that, to succeed, a firm must innovate; while others say, ‘let someone else make the mistakes first’.
Some executives prefer fast-changing, dynamic environments; others stable, quiet ones.
(iv) Risk Orientation:
Some executives feel that they must take big risks to ‘win big’. Other comment that ‘risk runs both ways’.
The above ‘value’ characteristics associated with the executives emphasise one set of objectives, while another group stresses another set.
Q.3. Why are ‘objectives’ so important to strategic management processes and practices? Discuss.
Ans. Objectives are considered to be important to strategic management processes and practices for several reasons, the most important of which are that objectives:
(1) Permit unified planning by all Strategic Business Units (SBUs) and all departments within them;
(2) Serve as a basis for motivation to the SBUs’ leaders and employees under them; and
(3) Enable management to perform the functions of strategic evaluation and control.
(1) Permit Unified Planning:
Top management establishes overall objectives that become the framework within which SBU managers and other lower-level executives and employees establish their own sub-objectives and plans. This creates a ‘hierarchy of objectives’ (illustrated later in a separate chart).
(i) Different SBUs and their parts have compatible objectives:
The activities of the total organisation, this way, would reflect the overall objectives of the top management.
(ii) Disharmony of Objectives:
Sometimes, however, there is disharmony of objectives in that top management does not define its overall objectives clearly. Consequently, the SBUs’ managers compete against one another at apparent cross purposes.
This type of disharmony is generally the result of the conflict of interest in the objectives to be achieved by each of the SBUs. The top management’s role to define the overall objectives and to persuade the SBUs to make a trade-off would bring in a solution in strategic issues.
(2) Provide Motivation:
The overall objectives of an organisation, when set realistically, serve as a basis of motivation to the SBUs. If the SBU no. l’s objective is the sales of Rs. 50 crores in a year, it is this target that activates the SBU manager and his subordinate divisional managers and so on.
But, there is one caution. Objectives must be perceived as realistic to have maximum effect. Objectives that are set too low do not provide a challenge and those set unrealistically high may be depressing or not accepted.
(3) Basis for Strategic Control:
When information obtained indicates that the objectives are not being met, the SBU as well as the Corporation must examine the situation and determine the corrective action needed. But, again, the corrective action should be promptly taken to see that actual performance conforms to the overall objective.
Q.4. “Well managed business organisations have at least four categories of objectives: profitability, competitiveness, efficiency and flexibility” –Discuss.
Ans. Objectives serve as guides for action and as starting points for more specific and detailed objectives at lower levels in the organisation. These specific and detailed objectives, when capable of being measured, become effective to the managements who are keen to reach them.
However, the categories of objectives are discussed below:
In business organisations, profitability is unquestionably the most important objective as it provides the financial resources for future expansion and innovation. Besides competing for customers, business firms also compete for resources (particularly capital).
An organisation’s earnings provide the return on investment (ROI) and it is for the sake of this ROI that a shareholder is willing to supply capital. To compete successfully for this capital, an organisation usually must earn a return equivalent to the risk of doing business.
This objective focuses on the prospects for long-term profitability. It measures an organisation’s competitive strength. Competitive strength is different from profitability. An organisation might have been profitable in the past but, based on performance in the competitive measures, it has poor prospects for long-term profitability.
An organisation must maintain certain types of short-term efficiencies to bring about the prospects of long-term profitability. Measures of efficiency reflect how well the organisation’s resources are employed.
Thus, while it is also a measure of profitability, a ratio such as ‘return on assets’ (net profit divided by total assets), when compared to that of similar organisations, gives management some indication of how efficient the organisation is internally in managing the assets of the organisation.
Well- managed organisations, regardless of size, establish objectives with respect to the quality of management, the succession of management, the depth of critical personnel, and employee turnover. Non-human resources such as the age and condition of the plant and equipment also are important indications of efficiency; objectives should be established in these areas, as well.
It is the objective by means of which the managers of a firm incorporate certain important factors in the present that will ensure a definite future for the organisation. For example, a manufacturer of consumer products operating in a volatile market has a flexibility objective that states the maximum percentage of sales which can be derived from a single product.
If this percentage is reached, the firm attempts to introduce a new product. Thus, if customers suddenly change their minds about any one of the organisation’s products and stop purchasing it, the impact on profitability is minimised.
Another organisation allows only a certain percentage of sales to be derived from government contracts. This practice ensures that the organisation maintains its flexibility and does not become dependent on government contracts.
Q.5. “An important us of ‘objectives’ is that they can be converted into ‘specific targets’ and ‘actions’“. Choose an organisation and give descriptive illustrations to this given statement.
Ans. One Organisation’s Use of Objectives—Illustrations:
Some representative measures in selected areas of organisational performance:
Return on owners’ equity, Return on assets, Earnings per share and Ratio of profit to sales.
Growth: Annual rate of increase in—Earnings per share, Market share and Sales.
Stability: Extent of fluctuations in—Sales, Earnings, and Capacity utilisation.
3. Internal Efficiency:
Return on assets, Return on sales, Inventory turnover, Working capital turnover. Personnel turnover, Depth of management and Age of plant and, machinery.
External: Some maximum percentage of sales and/or profits that can be derived from a single customer market segment or product.
Internal: Various liquidity and solvency measures, such as—
Liquidity: Current ratio, Acid test ratio, Inventory to net working capital ratio.
Solvency: Debt to equity ratio, Debt to assets ratio, Long-term debt to equity ratio.
Q.6. Determine the basic elements of the company’s business that should be covered in developing an overall corporate objective.
Ans. The four areas almost always vitally affect the success of a corporate business unit and so should be covered while developing an overall corporate objective.
1. The service or products which will be offered;
2. The kinds of manufacturing or services and marketing operations the company will perform;
3. The markets or the customers the company will serve or the industry in which the company will operate; and
4. The company’s expectations for the size, scope and profitability of its future operations.
While considering the above basic elements, the corporate business unit should recognize two important aspects:
(i) The functions to be performed (e.g., production, marketing, finance, etc.) and
(ii) The assumption of social and public responsibility under the laws of the State.
Q.7. State the reasons for change in mission and objectives.
Ans. The mission of an organisation is not self-evident. And a mission that is highly appropriate at one point in time may gradually become obsolete. For example, a large urban philanthropic institution that was originally committed to serving its local people floundered when its members began moving to the suburbs and the area became economically blighted.
The institution regained its vitality only when its members redefined their mission in terms of restoring the quality of life in the neighbourhood and serving the poor who had moved in.
Again as time passes, the organisation expands, the environment changes, and managerial personnel also change. And one or more things are likely to occur. First, the original purpose may become irrelevant as the organisation expands into new products, new markets, and even new industries.
Second, the original mission may remain relevant, but some managers begin to lose interest in it and see greater opportunities elsewhere. Finally, the changes in the environment may make the original mission inappropriate. When this occurs, management must renew the search for purpose or restate the original purpose.
A highly successful Xerox corporation redefined its mission of being a producer of copiers to being a supplier of automated office systems and IBM introduced IBM-PC for individual purchasers in addition to its focus on computers for large business houses.
Q.8. “The important point is that management translate the organisational mission into specific objectives that will support the realisation of the mission” –Draft a statement of ‘strategic objectives’ in the light of this statement.
Ans. The statement of strategic objectives are as follows:
1. Customer Focus:
i. Response to customer quires within 24 hours and attend post-commissioning problems within 48 hours.
ii. Completion of projects within schedule and without cost over-run.
2. Integration through Information Technology:
i. Virtual single office operation between Calcutta and Mumbai and major sites through common software platform leading towards paperless office and reduction in communication cost by 25%.
ii. Update skills of all employees so that 50% of all manual processes can be automated.
3. Employees’ Delight:
i. Minimum 3 training days per employee per year on identified needs.
ii. Improvement of Employee Satisfaction Index by at least 10%.
4. Partners in Business:
i. Each SBU to identify and tie up with at least 3 engineering contractors and collaborators as business partners.
ii. Each SBU to identify and tie up with at least 10 suppliers as business partners.
Q.9. “Organisational Objectives influence the performance and long-run survival of the organisation. These are identified as profitability, competitiveness, efficiency and flexibility”. Prepare a statement of ‘strategic objectives’ keeping in view these areas of performance.
Ans. The objectives are as follows:-
i. A continuous, high level of profits, which places us in the top bracket of the industry in rate of return on invested capital.
ii. Steady growth in profits and sales volume and investment at rates exceeding those of the national economy.
i. To make our brands number one in their field in terms of market share.
ii. To be leader in introducing new products by spending not less than 7% for research and development.
i. To manufacture all products efficiently as measured by the productivity of the work force.
ii. To protect and maintain all resources—equipment, buildings, inventory and funds.
i. To identify critical areas of management depth and succession of leadership.
ii. To respond appropriately whenever possible to societal expectations and environmental needs.
Q.10. “A business unit’s strategy depends upon, inter alia, its missions.” Explain the various missions that the business unit can adopt.
Ans. The various missions are explained below for adoption by business units:
1. ‘Build’ Mission:
Here, the Airlines’ strategy of ‘lower fares to increase market’ is dependent upon its mission: ‘Mass transit of as many passengers as possible’ with a view to achieving Calcutta- Durgapur-Bagdogra air-travel market as its specific strategic plan.
This is a kind of ‘build’ mission to increase Airlines’ market share. In order to increase market share it may have to sacrifice short-term earnings and cash flow. For this, Airlines is expected to be a net user of cash.
In general, business units with low market share in high-growth industries mostly pursue a ‘build mission’ (for example: Indica, and Modi Telstra).
2. ‘Hold’ Mission:
IBM initially focussed on large businesses as customers for its computers and business products. But when it introduced IBM-PC, it set up an entirely new unit to produce and sell it to individual buyers. This is a kind of ‘hold mission’ and this way, IBM could protect its market share and competitive position. Generally, a business unit having high market share in high-growth industries mostly pursues a ‘hold mission’.
3. ‘Harvest’ Mission:
This refers to maximising short-term earnings and cash flow even at the expense of present market share. For example, Hindustan Motors having high market share in low- growth car industry recently followed a ‘harvest mission’ with its traditional technology and design.
It is usually found that a business unit pursuing this ‘harvest mission’ is a net supplier of cash.
To sum up, the strategists are of the opinion that a business unit, keeping in view the competitive environment and socio-economic changes, has to redefine its mission and strategy depending upon its situation that more or less falls in any of the quadrants of BCG matrix.
Q.11. Define MBO in one sentence.
Ans. MBO is a management system in which subordinate managers actively participate with their superiors in establishing quantifiable, measurable performance goals for given time period.
Ans. Corporate mission is the unique and fundamental purpose that sets an organisation apart from others of the same type and that identifies the scope of its operations in product and market terms. It is a general and enduring statement of company intent.
Ans. To provide security against an ever-increasing range of risks and hazards that threaten the financial welfare of individuals, families, groups, and businesses at every economic level that can be served by the private sector.
Ans. Long-term objectives are concrete goals that collectively ensure the accomplishment of a company’s mission.
The following qualities should be present in them:
(i) specificity (i.e., clear directions about what needs to be done),
(ii) Measurability (i.e., results to be sought in quantifiable terms)
(iii) Achievability (i.e., should be realistic),
(iv) Comprehensiveness (i.e., different goals should be integrated)
(v) Coordination (i.e., consistency of goals between individuals, groups and the whole organisation),
(vi) Priority (i.e., ranking of goals in order of importance to provide guidelines for allocation of resources and resolution of conflicts),
(vii) Timing (i.e., setting target dates for the achievement of goals and sub-goals),
(viii) Flexibility(i.e., modifiable as conditions warrant, and
(ix) Acceptability (i.e., by all inside constituents).
Ans. The phrase ‘priority of objectives’ implies that at a given time, accomplishing one objective is more important than accomplishing any of the others. For example, the objective of maintaining “a minimum cash balance” may be more important than achieving minimum profitability to a firm struggling to meet payrolls and due dates on suppliers’ accounts.
Priority of objectives also reflects the relative importance of certain objectives, regardless of time. For example, survival of the organisation is necessary for the realisation of all other objectives.
For rational allocation of resources, the management must establish priorities. And so, alternative objectives should be evaluated and ranked for priority purposes particularly in the case of seemingly interdependent objectives.
Q.16. Give an example of a mission statement that spells out mission as well as basic objectives in respect of a public utility concern. Also list out the spectrum of service that the concern renders.
Ans. ‘The Department of Posts delivers much more than just letters.’
“We keep alive the spirit of freedom.
We provide efficient, reliable and technology driven services.
We are pledged to modernise and computerise the Indian Postal Network.
We are pledged to total dedication to understanding and fulfilling customer needs.
We recognize our responsibility as a part of the social, industrial and commercial life of the country.”
The India Post spectrum of services include:
(a) Speed post
(b) Business post
(c) Satellite post
(d) Corporate publicity post
(e) Express post
(g) Savings bank services
(h) Postal life insurance
(i) Money Orders
(j) Value Payable Post
(m) Postal Orders
(n) International Services, etc.
Q.17. Identify the factors that contribute to the change in organisational objectives.
Ans. Organisational objectives change as a result of the following factors :
1. Increased demands from various interest groups within the enterprise.
2. Changes in the expectation levels of managers—particularly when competitors’ levels of achievement are aimed at or when a gap between desired ends and the current achievement level is perceived.
3. Objectives can change as a result of a crisis. NASA went through a crisis after men had finally been placed on the moon. When such a crisis arises, objectives must be changed, and in successful organisations they are.
Objectives change more frequently in firms whose task environment and technology are more volatile.
Q.18. Give instances of ‘conflicts among objectives’.
Ans. Some of the most ‘common conflicts among objectives’ are listed below :
1. Short-term profits Vs. long-term growth.
2. Profit margin Vs. competitive position.
3. Direct sales effort Vs. development effort.
4. Greater penetration of present markets Vs. developing new markets.
5. Profit objectives Vs. social responsibilities.
6. Growth Vs. Stability.
7. Low-risk environment Vs. high-risk environment.
Ans. Short-term objectives of strategic nature may be listed under two categories as follows:
1. Marketing objectives:
Lowering of prices compared to key competitors, superior customer services in select areas, product variety expansion or reduction, introducing new brands of existing products, etc.
2. Financial objectives:
Increase of dividends, Issue of bonds or debentures, Installation of small plants, Make or buy decisions, etc.
The firm should see that each short-term objective is properly linked with one or more long-term objectives and that priorities among them are properly done.
Ans. Possible strategies for achieving a profit goal or target may be:
1. Establish company retail outlets,
2. Acquire related companies,
3. Expand production capacity,
4. Drop marginal product lines,
5. Diversify product lines,
6. Expand sales force, and
7. Automate production processes.
These strategies (not exhaustive but illustrative only) emphasise specific courses of action open to a firm depending on its resources and strengths, duly assessed in terms of environmental opportunities and risks.
Q.21. How do goals differ from strategies?
Ans. The implementation of strategies occurs through the achievement of goals. Goals are more specific and concrete than strategies. Let us suppose, top management decides that the company has been investing too heavily in growth to the detriment of profits, and consequently commits the firm to the strategy of increasing profits each year over the next five years. The goals required to implement this strategy will specify, among other things, exactly how much profit the company will attempt to make each year of the planning period and the means by which the increase in profits will be achieved. Goals are, therefore, an elaboration or extension of strategies.
Q.22. How do the features that distinguish goals from strategies motivate performance?
Ans. Goal setting in support of organisational strategies occurs at successively lower levels of the organisation in what is typically described as an ends-means chain. This means that a goal (an end) at one organisational level is a means towards achieving a higher level or broader goal at higher organisational levels. This continuity of the ends-means chain throughout the organisation motivates performance at all levels—higher or lower.
Q.23. Distinguish between policy and strategy.
Ans. A policy is a general statement that mirrors an organisation’s objectives and provides guidelines for administrative actions. They are standing plans, since they are relatively stable and change slowly. On the other hand, ‘a strategy is usefully thought of as a firm’s key operating policies in each functional area of business and how it seeks to interrelate the functions.’
The term ‘corporate strategy’ is global while ‘corporate policy’ is bounded, i.e., more constrained.
Again, a strategy statement includes the firm’s overall goals and objectives (e.g., customer mix, product mix, etc.) and its major functional policies (e.g., finance, production, etc.) along with the relative strength the firm has or wants in specific areas.
Further, policy-making is decision making that limits the discretion of managers and provides limits within which acceptable decisions must fall. Strategy making in business is an art of general management, a competitive game, and a technique of managing in times of rapid change and uncertainty.