An Assignment

On

Strategic Financial Management

Topic: Introduction to Strategic Financial Management

Prepared by :

Roll no

MBA sem-3 (SFI)

Submitted to:

Dr.Butalal Ajmera

Department of Business Administration

Bhavnagar University

Bhavnagar

DEFINITION

Strategic Management

Strategic Management is a stream of decisions and actions which lead to the development of an effective strategy or strategies, to help achieve corporate objectives.

- Glueck and Jauch

Strategy

The word "strategy" comes from the Greek word for "generalship". Like a good general, strategies give overall direction for an initiative.

“A company’s strategy consist of a combination of a competitive moves and business approaches that managers employ to please customers, complete successfully and achieve organisational objective.”

A strategy is a way of describing how you are going to get things done.

A good strategy will take into account existing barriers and resources (people, money, power, materials, etc.). It will also stay with the overall vision, mission, and objectives of the initiative.

Strategic Financial Management

Managing an organization's financial resources so as to achieve its business objectives and maximize its value. Strategic financial management involves a defined sequence of steps that encompasses the full range of a company's finances, from setting out objectives and identifying resources, analyzing data and making financial decisions, to tracking the variance between actual and budgeted results and identifying the reasons for this variance. The term "strategic" means that this approach to financial management has a long-term horizon.

BREAKING DOWN 'STRATEGIC FINANCIAL MANAGEMENT’

At the most fundamental level, financial management is concerned with managing an organization's assets, liabilities, revenues, profitability and cash flow. Strategic financial management goes a step further in ensuring that the organization remains on track to attain its short-term and long-term goals, while maximizing value for its shareholders. 

Strategic financial management also means that short-term goals may occasionally need to be sacrificed to meet longer-term objectives. A typical example is when a loss-making company trims its asset base through factory closures or headcount reduction in order to reduce operating expenses. While such actions have a detrimental effect on near-term results because of restructuring costs and other one-time items, it positions the company to achieve profitability in the longer term.

MEANING OF STRATEGIC MANAGEMENT

Strategic management has evolved as a multidisciplinary field that take a holistic view of a business enterprise. It involves logical, analytical, futuristic view point to business situation and designing strategies, then implementing them, over a period of time.

Strategic management involves the formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.

Strategic management provides overall direction to the enterprise and involves specifying the organization's objectives, developing policies and

plans designed to achieve these objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models often include a feedback loop to monitor execution and inform the next round of planning.

Michael Porter identifies three principles underlying strategy: creating a "unique and valuable [market] position", making trade-offs by choosing "what not to do", and creating "fit" by aligning company activities with one another to support the chosen strategy. Dr.Vladimir Kvint defines strategy as "a system of finding, formulating, and developing a doctrine that will ensure long-term success if followed faithfully.”

Corporate strategy involves answering a key question from a portfolio perspective: "What business should we be in?" Business strategy involves answering the question: "How shall we compete in this business?" In management theory and practice, a further distinction is often made between strategic management and operational management. Operational management is concerned primarily with improving efficiency and controlling costs within the boundaries set by the organization's strategy.

Strategic management involves the related concepts of strategic planning and strategic thinking. Strategic planning is analytical in nature and refers to formalized procedures to produce the data and analyses used as inputs for strategic thinking, which synthesizes the data resulting in the strategy. Strategic planning may also refer to control mechanisms used to implement the strategy once it is determined. In other words, strategic planning happens around the strategic thinking or strategy making activity.

Strategic management is often described as involving two major processes: formulation and implementation of strategy. While described sequentially below, in practice the two processes are iterative and each provides input for the other.

Formulation

Formulation of strategy involves analyzing the environment in which the organization operates, then making a series of strategic decisions about how the organization will compete. Formulation ends with a series of goals or objectives and measures for the organization to pursue. Environmental analysis includes the:

Remote external environment, including the political, economic, social, technological, legal and environmental landscape (PESTLE);

Industry environment, such as the competitive behaviour of rival organizations, the bargaining power of buyers/customers and suppliers, threats from new entrants to the industry, and the ability of buyers to substitute products (Porter's 5 forces); and

Internal environment, regarding the strengths and weaknesses of the organization's resources (i.e., its people, processes and IT systems).

Strategic decisions are based on insight from the environmental assessment and are responses to strategic questions about how the organization will compete, such as:

What is the organization's business?

Who is the target customer for the organization's products and services?

Where are the customers and how do they buy? What is considered "value" to the customer?

Which businesses, products and services should be included or excluded from the portfolio of offerings?

What is the geographic scope of the business?

What differentiates the company from its competitors in the eyes of customers and other stakeholders?

Which skills and capabilities should be developed within the firm?

What are the important opportunities and risks for the organization?

How can the firm grow, through both its base business and new business?

How can the firm generate more value for investors?

The answers to these and many other strategic questions result in the organization's strategy and a series of specific short-term and long-term goals or objectives and related measures.

Implementation

The second major process of strategic management is implementation, which involves decisions regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and mobilized towards the objectives. Implementation results in how the organization's resources are structured (such as by product or service or geography), leadership arrangements, communication, incentives, and monitoring mechanisms to track progress towards objectives, among others.

Running the day-to-day operations of the business is often referred to as "operations management" or specific terms for key departments or functions, such as "logistics management" or "marketing management," which take over once strategic management decisions are implemented.

Characteristics of Strategic Management

Strategic Management is Holistic, fore sight oriented and futuristic approach.

It is related to ‘beginning with the end in mind’.

The senior or top level management is the decision maker.

Senior management designs the future policies through planning.

It is dynamic and continuous process.

It is more proactive than reactive in nature towards environment.

Optimum utilisation of resources within the organisation.

LEVEL OF STRATEGY’S

Enterprise strategy can be formulated and implemented at three different levels:

1. Corporate level2. Business unit level3. Functional or departmental level

 

Corporate Level Strategy

Corporate level strategy occupies the highest level of strategic decision-making and covers actions dealing with the objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. Top management of the organization makes such decisions. The nature of strategic decisions tends to be value-oriented, conceptual and less concrete than decisions at the business or functional level.Corporate level strategy fundamentally is concerned with selection of businesses in which your company should compete and with development and coordination of that portfolio of businesses.

Corporate level strategy is concerned with: Reach – defining the issues that are corporate responsibilities. These

might include identifying the overall vision, mission, and goals of the corporation, the type of business your corporation should be involved, and the way in which businesses will be integrated and managed.

Competitive Contact – defining where in your corporation competition is to be localized.

Managing Activities and Business Interrelationships – corporate strategy seeks to develop synergies by sharing and coordinating staff and other resources across business units, investing financial resources across business units, and using business units to complement other corporate business activities.

Management Practices – corporations decide how business units are to be governed: through direct corporate intervention (centralization) or through autonomous government (decentralization).

Business Unit Level Strategy

A strategic business unit may be any profit centre that can be planned independently from the other business units of your corporation. At the business unit level, the strategic issues are about both practical coordination of operating units and about developing and sustaining a competitive advantage for the products and services that are produced.

Functional Level Strategy

The functional level of your organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to functional business processes and value chain. Functional level strategies in R&D, operations, manufacturing, marketing, finance, and human resources involve the development and coordination of resources through which business unit level strategies can be executed effectively and efficiently.

Functional units of your organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy, such as providing information on customer feedback or on resources and capabilities on which the higher level strategies can be based. Once the higher level strategy or strategic intent is developed, the functional units translate them into discrete action plans that each department or division must accomplish for the strategy to succeed.3

IMPORTANCE OF STRATEGIC MANAGEMENT

Strategic management has gained importance as it:-

Provides a dynamic combination of expertise, experience and conceptual knowhow

Provides a generalise view encompassing a broader cross-functional perspective

Offers a logical, analytical, rational and long term orientation in decision making

Creates harmonious understanding of how policies are created, reviewed and implemented

Provides more response from the managers as a clear direction is identified

Facilitates interaction of thinkers and encourages organizational commitment of decision maker

Focuses on corporate governance and high ethical standards

Facilitates unconventional thinking as it is integral and leads to creativity

Involves an intuitive and conceptual analysis along with sound reasoning

Offers a better orientation towards stakeholders interest

The Role of Finance in the Strategic-Planning and Decision-Making Process

The fundamental success of a strategy depends on three critical factors: a firm’s alignment with the external environment, a realistic internal view of its core competencies and sustainable competitive advantages, and careful implementation and monitoring. This article discusses the role of finance in strategic planning, decision making, formulation, implementation, and monitoring.

Any person, corporation, or nation should know who or where they are, where they want to be, and how to get there. The strategic-planning process utilizes analytical models that provide a realistic picture of the individual, corporation, or nation at its “consciously incompetent” level, creating the necessary motivation for the development of a strategic plan. The process requires five distinct steps outlined below and the selected strategy must be sufficiently robust to enable the firm to perform activities differently from its rivals or to perform similar activities in a more efficient manner.

A good strategic plan includes metrics that translate the vision and mission into specific end points. This is critical because strategic planning is ultimately about resource allocation and would not be relevant if resources were unlimited. This article aims to explain how finance, financial goals, and financial performance can play a more integral role in the strategic planning and decision-making process, particularly in the implementation and monitoring stage.

Characteristics/Features of Strategic Decisions

Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is a strategic decision which is achieved through operational decision of reducing the number of employees and how we carry out these reductions will be administrative decision. The features of strategic decision are as follow:-

a. Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others.

b. Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities.

c. Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about.

d. Strategic decisions involve a change of major kind since an organization operates in ever-changing environment.

e. Strategic decisions are complex in nature.f. Strategic decisions are at the top most level, are uncertain as they

deal with the future, and involve a lot of risk.g. Strategic decisions are different from administrative and operational

decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions.

DIFFERENCES BETWEEN

The differences between Strategic, Administrative and Operational decisions can be summarized as follows-

Strategic Decisions Administrative Decisions

Operational Decisions

Strategic decisions are long-term decisions.

Administrative decisions are taken daily.

Operational decisions are not frequently taken.

These are considered where The future planning is concerned.

These are short-term based Decisions.

These are medium-period based decisions.

Strategic decisions are taken in Accordance with organizational mission and vision.

These are taken according to strategic and operational Decisions.

These are taken in accordance with strategic and administrative decision.

These are related to overall Counter planning of all Organization.

These are related to working of employees in an Organization.

These are related to production.

These deal with organizational Growth.

These are in welfare of employees working in an organization.

These are related to production and factory growth.

Limitation

While strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment, these very elements also mean that certain signals are excluded from consideration or de-emphasized. Mintzberg wrote in 1987: "Strategy is a categorizing scheme by which incoming stimuli can be ordered and dispatched." Since a strategy orients the organization in a particular manner or direction, that direction may not effectively match the environment, initially (if a bad strategy) or over time as circumstances change. As such, Mintzberg continued, "Strategy [once established] is a force that resists change, not encourages it."

Therefore, a critique of strategic management is that it can overly constrain managerial discretion in a dynamic environment. "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?"  Some theorists insist on an iterative approach, considering in turn objectives, implementation and resources. I.e. a "...repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination." Strategies must be able to adjust during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning."

In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that successful strategies are imitated by firms that do not understand that for a strategy to work, it must account for the specifics of each situation.Woodhouse and Collingridge claim that the essence of being “strategic” lies in a capacity for "intelligent trial-and error" rather than strict adherence to finely honed strategic plans. Strategy

should be seen as laying out the general path rather than precise steps. Means are as likely to determine ends as ends are to determine means. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources.

The Strategic-Planning and Decision-Making Process

1. Vision StatementThe creation of a broad statement about the company’s values, purpose, and future direction is the first step in the strategic-planning process.[6] The vision statement must express the company’s core ideologies—what it stands for and why it exists—and its vision for the future, that is, what it aspires to be, achieve, or create.

2. Mission StatementAn effective mission statement conveys eight key components about the firm: target customers and markets; main products and services; geographic domain; core technologies; commitment to survival, growth, and profitability; philosophy; self-concept; and desired public image. The finance component is represented by the company’s commitment to survival, growth, and profitability. The company’s long-term financial goals represent its commitment to a strategy that is innovative, updated, unique, value-driven, and superior to those of competitors.

3. AnalysisThis third step is an analysis of the firm’s business trends, external opportunities, internal resources, and core competencies. For external analysis, firms often utilize Porter’s five forces model of industry competition, which identifies the company’s level of rivalry with existing competitors, the threat of substitute products, the potential for new

entrants, the bargaining power of suppliers, and the bargaining power of customers.

For internal analysis, companies can apply the industry evolution model, which identifies takeoff (technology, product quality, and product performance features), rapid growth (driving costs down and pursuing product innovation), early maturity and slowing growth (cost reduction, value services, and aggressive tactics to maintain or gain market share), market saturation (elimination of marginal products and continuous improvement of value-chain activities), and stagnation or decline (redirection to fastest-growing market segments and efforts to be a low-cost industry leader). Another method, value-chain analysis clarifies a firm’s value-creation process based on its primary and secondary activities. This becomes a more insightful analytical tool when used in conjunction with activity-based costing and benchmarking tools that help the firm determine its major costs, resource strengths, and competencies, as well as identify areas where productivity can be improved and where re-engineering may produce a greater economic impact.

SWOT (strengths, weaknesses, opportunities, and threats) is a classic model of internal and external analysis providing management information to set priorities and fully utilize the firm’s competencies and capabilities to exploit external opportunities, determine the critical weaknesses that need to be corrected, and counter existing threats.

4. Strategy FormulationTo formulate a long-term strategy, Porter’s generic strategies model  is useful as it helps the firm aim for one of the following competitive advantages: a) low-cost leadership (product is a commodity, buyers are price-sensitive, and there are few opportunities for differentiation); b) differentiation (buyers’ needs and preferences are diverse and there are opportunities for product differentiation); c) best-cost provider (buyers expect superior value at a lower price); d) focused low-cost (market niches with specific tastes and needs); or e) focused differentiation (market niches with unique preferences and needs).

5. Strategy Implementation and ManagementIn the last ten years, the balanced scorecard (BSC) has become one of the most effective management instruments for implementing and monitoring

strategy execution as it helps to align strategy with expected performance and it stresses the importance of establishing financial goals for employees, functional areas, and business units. The BSC ensures that the strategy is translated into objectives, operational actions, and financial goals and focuses on four key dimensions: financial factors, employee learning and growth, customer satisfaction, and internal business processes.

The Role of Finance

Financial metrics have long been the standard for assessing a firm’s performance. The BSC supports the role of finance in establishing and monitoring specific and measurable financial strategic goals on a coordinated, integrated basis, thus enabling the firm to operate efficiently and effectively. Financial goals and metrics are established based on benchmarking the “best-in-industry” and include:

1. Free Cash FlowThis is a measure of the firm’s financial soundness and shows how efficiently its financial resources are being utilized to generate additional cash for future investments. It represents the net cash available after deducting the investments and working capital increases from the firm’s operating cash flow. Companies should utilize this metric when they anticipate substantial capital expenditures in the near future or follow-through for implemented projects.

2. Economic Value-AddedThis is the bottom-line contribution on a risk-adjusted basis and helps management to make effective, timely decisions to expand businesses that increase the firm’s economic value and to implement corrective actions in those that are destroying its value. It is determined by deducting the operating capital cost from the net income. Companies set economic value-added goals to effectively assess their businesses’ value contributions and improve the resource allocation process.

3. Asset ManagementThis calls for the efficient management of current assets (cash, receivables, inventory) and current liabilities (payables, accruals) turnovers and the enhanced management of its working capital and cash conversion cycle. Companies must utilize this practice when their operating performance falls behind industry benchmarks or benchmarked companies.

4. Financing Decisions and Capital StructureHere, financing is limited to the optimal capital structure (debt ratio or leverage), which is the level that minimizes the firm’s cost of capital. This optimal capital structure determines the firm’s reserve borrowing capacity (short- and long-term) and the risk of potential financial distress. Companies establish this structure when their cost of capital rises above that of direct competitors and there is a lack of new investments.

5. Profitability RatiosThis is a measure of the operational efficiency of a firm. Profitability ratios also indicate inefficient areas that require corrective actions by management; they measure profit relationships with sales, total assets, and net worth. Companies must set profitability ratio goals when they need to operate more effectively and pursue improvements in their value-chain activities.

6. Growth IndicesGrowth indices evaluate sales and market share growth and determine the acceptable trade-off of growth with respect to reductions in cash flows, profit margins, and returns on investment. Growth usually drains cash and reserve borrowing funds, and sometimes, aggressive asset management is required to ensure sufficient cash and limited borrowing. Companies must set growth index goals when growth rates have lagged behind the industry norms or when they have high operating leverage.

7. Risk Assessment and ManagementA firm must address its key uncertainties by identifying, measuring, and controlling its existing risks in corporate governance and regulatory compliance, the likelihood of their occurrence, and their economic impact. Then, a process must be implemented to mitigate the causes and effects of

those risks. Companies must make these assessments when they anticipate greater uncertainty in their business or when there is a need to enhance their risk culture.

8. Tax OptimizationMany functional areas and business units need to manage the level of tax liability undertaken in conducting business and to understand that mitigating risk also reduces expected taxes. Moreover, new initiatives, acquisitions, and product development projects must be weighed against their tax implications and net after-tax contribution to the firm’s value. In general, performance must, whenever possible, be measured on an after-tax basis. Global companies must adopt this measure when operating in different tax environments, where they are able to take advantage of inconsistencies in tax regulations.

Empirical studies have shown that a vast majority of corporate strategies fail during execution. The above financial metrics help firms implement and monitor their strategies with specific, industry-related, and measurable financial goals, strengthening the organization’s capabilities with hard-to-imitate and non-substitutable competencies. They create sustainable competitive advantages that maximize a firm’s value, the main objective of all stakeholders.

SCOPE AND INTER-LINKAGES IN STRATEGIC DECISION MAKING

The scope of strategic management in decision making is extensive. The inter-linked environs, where substantial strategic action can be devised in an organization by business leaders to avail best opportunities available, may constitute the following:

1. Top management’s general decision making:

It relates to taking decision for the organization as a whole strategic management takes a holistic view of what the business is and how it can achieve its purpose and vision. This requires having a detailed

understanding of the organization and the environment in which it exists, including their dynamic relationship. Various decision making tools and techniques are available with the top management for this. The decisions taken by top management are then integrated with the functioning of the various departments across the enterprise so that the activities of all the departments are helpful in achieving the desired result The top management decides the future course of action over a long period of time. However, it is also involved in short-term issues, as when the situations demand, to make the required changes in each of the components of the enterprise to achieve the result.

2. Finance-oriented decision making:

This relates to taking decisions about arranging and utilizing funds in order to maximize profitability and value of the firm. This area takes into consideration all the aspects related to sourcing funds, investing funds, maintaining cash levels, increasing profit margins, managing costs and enhancing the value of the shares in the market. It includes both long-term and short-term decision making. The strategic or long-term purview is essential. Strategic financial management relates to long-term planning and designing of financial policy to achieve crucial strategic goals in consonance with the company’s vision and mission. The financial decisions are inter-linked with other departments of the company as their inputs and activities usually require funding. So financial decisions are connected with the financial status and well-being of a company. If a company wishes to expand its operations in future, it is necessary to make the required changes funds accordingly.

3. Research and development-oriented decision making:

This relates to exploration of the potential of the organization’s capability by investing in research and development, which could give a distinctive edge to the company in the competitive markets.

The constraint here is that the company may have to keep investing funds and resources over a period of time as the new findings may take a long time, and it can reap benefits from them only after a breakthrough is achieved. Research is especially important in highly innovative and competitive industries like computers, technology-oriented sectors, education, pharmaceuticals, entertainment, FMCGs, defence services, etc.

4. Human resources-oriented decision making:

The potential and talents present in the human capital are the force that enhances optimal utilization of other resources and capabilities present in the organization. The expertise, skill, talent, and brain-ware will decide the future of the organization in a competitive environment.

5. Operations-oriented decision making:

It relates to production or manufacturing of goods. An input as raw material is run through a process and an output as a consumable product is given. The decisions are not just restricted to this process. Manufacturing and production decisions are short-term as well as long-term. The long-term decisions may involve capacity expansion, new production techniques, equipment requisition, innovative material inputs, layout designing, etc. while the short-term decisions may relate to day-to-day operations of the manufacturing unit.

6. Marketing-oriented decision making:

It relates to decision making pertaining to customer satisfaction, consumer needs, making available the products and services through optimized distribution networks, segmenting and targeting of markets, positioning products, promotion and publicity, etc. The strategic decisions involve product or service brand equity, market expansions, targeting, positioning, market analysis based on

research, commercialization of products and improvising the existing, mapping consumer behaviour and taking strategic marketing decisions in consonance with the company’s vision.

7. Information-oriented decision making:

It relates to the availability of information, as and when required, that has the capability of generating commercial value, In the era of information and competition, there should be a proper flow of information as facts and data are required for decision making. So, there are constant advancements in information and technology, online resources, various Enterprise Resource Planning (ERP) software and equipment. The level of investment and what should reach whom decisions are important, Constant up gradation is also required and a dynamic information system is necessary.

8. Innovation-oriented decision making:

Business leaders of companies need to be aware of the innovation that exists and the potential that it holds. Innovation can be multidimensional, usually arising out of human brain-ware. It is essential to harness the potential in day-to-day as strategic context through proper development. It may be exhibited in intelligence, skill, processes, techniques, inputs, outputs, etc.

All these areas are of great importance, but general management decision making and financial decision making are the integral means of support for all other functions. Their criticality must not be ignored. So, let us understand the strategic or general management and financial management in the chapters to follow.

Constraints to Strategic Management

Strategic management offers a wide arrays of benefits over a wide arrays of benefits over a long period of time, but it also suffers from certain constraints that creep up either out of the strategic management process, resource constraint, or the given environment. The prominent constraints are as follows:

Concept of shared vision

In practical business situation, vision may not have sharing as it is advocated in the theoretical concepts. Usually, the vision is formulated at the top level and is required to follow that without much scope for reasoning.

Biases and preconceived notions of strategists

An unbiased and analytical approach is endorsed by strategic management discipline, but it overlooks the human tendency towards inclination and subjectivity. The strategist may become a victim of biases, prejudices, pre-conceived notions, presumptions, etc. while making decision and may not even realise it. This can suppress innovation and radical thought processes. This is myopic and detrimental in consequences.

Psychological factors

The strategic thinking is pertaining to the mind and the psychology of the decision makers. The human psychology is a complex matter. The conscious and subconscious mind may come into play while making decision and natural human instincts may overpower analytical thinking. This is a constraint as humans are involved in strategic thinking.

Inclination towards specialization

The decision makers may opt to compartmentalise the organization and exhibit intense inclination towards the aspects related to their own field of speciality. This will defy the holistic approach and will turn the strategist into a specialist and not a generalist, while being a generalist is a prerequisite for strategic planning.

Faulty planning

The impetus for the strategic management process is planning. If the foundation, i.e. planning is not done properly, then the whole process loses its character. There will be huge wastage of resources and capabilities.

Strategic management- a process or an event

There is a difference between seeing strategic management as a process or as an event. If there is an episodic approach to strategic management, it may not bear fruitful results. Instead, it should be imbibed into the natural course of working of the business and its impacts should be exhibited at functional levels. Therefore, it is a mistake to see strategic management as a one-time event.

Paralysis by over-analysis

It is said that excess of good thing is also bad if the strategist is thinking more than actually doing, then it is a trap. There can be overload of information that can paralyse the strategist, and he loses the courage to take decisions. This can allow valuable opportunities to slip away.

Inadequate understanding

Though understanding the field and the organization is a must, the inability to do so may do more harm than good, as the proverb goes, little knowledge is a dangerous thing. A detailed orientation is mandatory for a proper analysis.

Other constraints

There may be other constraints while implementing the strategy. Each level in the organization offers new challenges. Integration is a must at all levels. A disoriented leader can be destructive and counterproductive.

Although these constraints are a potential threat to the strategic decision making process, they have been enumerated to help the strategist identify them and spontaneously attempt to overcome them. These can be countered if the strategist ideally follows the strategic decision making process with an open mind.

Conclusion

It provides a holistic view as well as techniques to understand details such that proper decision making can be done to achieve desire goal and Helpful for future planning and current analysis of business. The approach should be followed with due caution, keeping the opportunities as well as the constraints under consideration

The scope of SFM is expanding. SFM works as an academic discipline as well as a practical technique in business in order to increase the need to manage funds more effectively and efficiently, to generate optimum returns in future. Recently, the business economic conditions have been challenging and strategists tried to safeguard the interests of their shareholders by utilizing superior management techniques wherever possible. In such a business environment, sound management of resources is crucial. For this, foresight and proactive approach are the facilitators that form an integral part of strategic financial management.

DEPARTMENT OF TELECOMMUNICATIONS

MINISTRY OF COMMUNICATION &

IT GOVERNMENT OF INDIA

INTRODUCTION

The Indian Telecom sector has come a long way since liberalization started with New Telecom Policy (1999). Telecom sector has witnessed exponential growth especially in the wireless segment in the last few years. Telecom has evolved as a basic infrastructure like electricity, roads, water etc. Total number of telephone subscribers have increased from mere 76 million in 2004 to more than 764.77 Million in 30th November 2010.

The telecom sector is one of the major drivers of the growth of the Indian economy. It is the fastest growing telecom sector in the world with more than 16 million subscribers being added every month.

1.3 The auction of 3G and BWA spectrum in June 2010 has opened the gates for the availability of the latest technology and innovations for Indian consumers.

1.4 The total tele-density is now 64.34% as on 30th Nov 2010 and the telecom sector is one of the significant contributors to the Government revenue.

1.5 Although, the progress of the past few years has been spectacular, there are several areas of deficit and concern for which a well thought out strategy has to be evolved for the development of this sector.

1.6 In order to further boost the growth in Telecom sector, Government has decided to draft a Strategic Plan of Department of Telecommunications, for next five years.

Vision, Mission, Objectives and Functions

Vision:

To provide to the people of India, reliable and affordable tele-connectivity capable of delivering tele-services anytime, anywhere.

Mission: To develop a strong, vibrant, secure state-of-the-art

telecommunication network providing seamless coverage with special focus on rural and remote areas and bridging digital divide .

Promote Research and Development and Product Developments in cutting edge technologies and services for domestic and worldwide markets

Promote Development of new standards and generate IPRs to make India a leading nation in the area of telecom standardization, especially among Asia Pacific countries.

To create knowledge based society through proliferation of broad band facilities in every part of the country.

Make India a global hub, for telecom services and telecom equipment manufacturing.

Objectives

To facilitate inclusive growth of telecommunications by formulating coherent policies in the following areas, for,:

Optimum utilization of scarce spectrum resource. Ensure security in telecom networks and adopt effective measures to

deal with cyber threats. Grant of telecom licenses in an objective and transparent manner. Promotion of robust competitive Market for telecom services. Convergence of technologies, services and harmonization of

regulatory framework

Functions:

Policy, Licensing and coordination matters relating to Telegraphs, Telephones, Wireless Data, Facsimile, Telemetric services and other like forms of telecommunications. Promotion of standardization, research and development in telecommunications.

Promotion of private investment in telecommunications.

Financial assistance for the further research and study in telecommunication technology and for building up adequately trained manpower for telecom programmed including assistance to institutions and to universities for advance scientific study and research.

Promotion of indigenous telecom equipment manufacturing for domestic market as well as for export.

To promote deployment of secure indigenous equipment for strategic, security and government networks.

STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREAT (SWOT) ANALYSIS

1.Strengths I. Fastest growing telecom market. II. Progressive reform process. III. Forward looking approach of the Government. IV. Technology neutrality. V. Formulation of policies in tune with the growth requirement. VI. Fast adaptation of technological development i.e. Mobile Number Portability (MNP), Next generation Network (NGN), 3G and Broadband Wireless Access(BWA), IPv6 etc.

2 Weaknesses

I. Lack of indigenous Telecom Manufacturing and R&D II. Comparatively slower growth of Telecom services in rural/remote areas. III. Low Broadband penetration in the country IV. Lack of local content/application development. V. Low profitability of Telecom PSUs. VI. Non availability of adequate spectrum VII. Utilization against the available corpus of USOF.

3 Opportunities

I. For developing a new comprehensive Telecom policy. II. For accelerating the growth of teledensity in the country. III. For creation of telecom infrastructure in rural and remote areas by utilization of the USO Fund. IV. For laying of Optical Fibre Cable (OFC) to uncovered areas and effective utilization of the existing resources to provide backhaul connectivity. V For huge Broadband potential in the country.

4 Threats

I. Non availability of adequate spectrum for telecom services II. Underperformance of PSUs resulting in industrial unrest and erosion of value of government equity. III. Dependence on foreign telecom equipment suppliers. IV. Cyber threats on ICT networks, leading to security concerns. VI Obsolesce of existing network elements due to fast changing telecom technologies.

STRATEGY PLANFORMINISTRY OF MINES1

STRATEGIC PLAN DOCUMENT MINISTRY OF MINES1 VISIONAchieve optimal utilization of India's mineral resources throughscientific, sustainable and transparent mining practices, exploration andgeo-scientific research & development2 OBJECTIVEReworking legislative framework for transparent, safe, scientific &sustainable mining and effective regulation(i) Facilitating techno-economic and scientific development in themineral sector.(ii) Strengthening mechanisms for regulation of mining and curbingillegal mining(iii) Bringing about improvement in the functioning of GSI(iv) Bringing about improvement in the functioning of IBM(v) Effective supervision of mineral concession system(vi) Monitoring and improving performance of PSUs(vii) Promoting R&D projects(viii) Accelerating partnerships with resource rich countries.(ix) Survey & exploration of sea bed minerals up to ExclusiveEconomic Zone (EEZ).(x) Human Resource Development & Capacity building for Central &State Government and other stakeholders.3 FUNCTIONS3.1 Legislation for regulation of mines and development of mineralswithin the territory of India, including mines and minerals underlying theocean within the territorial waters or the continental shelf, or the2exclusive economic zone and other maritime zones of India as may bespecified, from time to time by or under any law made by Parliament.3.2 Regulation of mines and development of minerals other than coal,

lignite and sand for stowing and any other mineral declared asprescribed substances for the purpose of the Atomic Energy Act, 1962(33 of 1962) under the control of the Union as declared by law,including questions concerning regulation and development of mineralsin various States and the matters connected therewith or incidentalthereto.3.3 All other metals and minerals not specifically allotted to any otherMinistry/ Department, such as aluminium, zinc, copper, gold, diamonds,lead and nickel.3.4 Planning, development and control of, and assistance to, allindustries dealt with by the Ministry.3.5 Administration and management of Geological Survey of India.3.6 Administration and management of Indian Bureau of Mines.4 GLOBAL TRENDS IN THE MINERAL SECTORGlobally, three trends have emerged in the minerals sector in recentyears:(i) Rising demand relative to supply and increasing cost of mininghas led to an increase in commodity prices. The mineral demand islikely to increase at an even faster pace—the demand for iron-ore islikely to grow at 2 to 5 per cent globally over the next 10 years. At thesame time, replenishing mineral reserves has only become moredifficult due to declining ore grades and additional challenges such asinadequate infrastructure and human capital, critical to support thegrowth of the sector.3(ii) Consequently, we see heightened exploration activity—companies are increasingly getting into new geographies likeAfrica: Exploration spend has increased four times with the share ofjuniors increasing from 30 per cent to nearly 50 per cent in the lastdecade.(iii) Governments worldwide are adopting progressive policymeasures to boost mining in their countries: The Indiangovernment, too, has initiated several measures to reform themining sector, e.g., MMDR Act, Sustainable DevelopmentFramework.5 NATIONAL TRENDS IN THE MINERAL SECTOR5.1 Performance on output parametersContribution of mining sector to India’s GDP has been stagnant ataround 1.2 per cent over the last decade. The Indian mining sector grewat a CAGR of 7.3 per cent in the last decade compared to 22 per cent in

China for the same period. The mining sector employs a smallerpercentage of India’s population (0.3 per cent as compared to 3.8 percent in South Africa, 1.4 per cent in Chile, and 0.7 per cent for China). Inaddition, employment in the Indian mining sector has grown at a rate ofabout 3 per cent per annum over the last 10 years.5.2 Performance on input parametersIndia’s spend on exploration projects is at 0.3 per cent of the globalspend (compared to 19 per cent for Canada and 12 per cent forAustralia). Exploration in India is mostly restricted to a depth of 50 to 100metre vs. as deep as 300 metre in countries such as Australia.45.3 OpportunitiesDespite this scenario, India is in a good starting position to transform itsmining sector. This is due to India’s large reserve base of coal, iron ore,bauxite manganese, etc., and also the push towards progressive policymeasures initiated by the Ministry, such as the MMDR Act, and IBM/GSIreforms.6 ASSESSMENT OF SITUATION6.1 Mining and metals sectors can play a critical role in the economicdevelopment, attracting investment and employment generation in thecountry. The demand for various metals and minerals will grow 4-5times over the next 15 years (9-11% growth per annum) against abackdrop of globally dwindling and increasingly scarce resources.There will be huge demand for the metals in view of the rapidurbanization and growth in the manufacturing sector in India as shownbelow in Figure 1. The mineral sector needs to prepare for facing thechallenges in view of increasing demand and reducing resources worldover.Figure 1. Metals demand in India will increase 4 to 5 times over 15 years2010Steel demandMillion tonsAluminum demandMillion tons2756020258.51.62010 2025Copper demandMillion tons20102.40.62025

56.2 With the mineral potential in India, the contribution of the mining

sector in the GDP should aspire to around 7-8% over 20 years. Themining sector needs to play a major role if India has to realize thepotential growth of 9% per annum in the coming years.6.3 Development of the minerals potential could also helpin mainstreaming the local communities (including tribal communities )by sharing the economic benefits of mining related activities with themin a fair and equitable manner through mechanism that give themchoices and enable them to adopt changes at a pace of their choosing .Most of the mineral potential areas are in the interior tribal areas ofIndia , where the development is the lowest .The mineral sector canpotentially change the situation by providing much neededemployment and infrastructure creation needs. The per capita GDP inthese mineral rich, tribal dominated states vs. the India average and asimilar comparison in other countries indicates the strategic need tounlock the potential of the mineral sector.7 ‘TRANSFORMINING’ THE INDIAN MINERALS SECTOR —SIX PRIORITIES7.1 The vision of the Ministry of Mines is to promote optimal utilisation ofIndia’s mineral resources for its industrial growth and create economicsurplus using scientific exploration and sustainable mining practices. Thekey objectives of the Ministry are to:(i) Define a legislative and non legislative framework to• Promote scientific exploration for expanding the mineralreserves in India to its full potential (onshore and offshore)• Ensure globally best, fair, transparent, and efficient processfor the mineral concession system• Enable sustainable mining• Address the needs of key stakeholders (states, industry,concerned ministries and departments, local communities)6• Define the mandate for the key agencies under the Ministryviz, Indian Bureau of Mines (IBM), Geological Survey ofIndia (GSI), PSUs.(ii) Develop geo-scientific partnerships with the state government,industry and other stakeholders for the management of mineralresources and development of mineral based industries.(iii) Support the Indian industry in accessing the mineral resourcesinternationally to ensure raw material security.(iv) Position the Ministry as a techno-economic policy formulatorand promoter of sectoral scientific activities.

7.1.2 Given the starting position of the Indian mining sector, global trendsin the industry, as well as the overall vision and objectives of the Ministryof Mines, targeted action is required on five key initiative areas whileworking closely with the stakeholders.7.2 Expanding resource and reserve base by stepping upexploration and aiding international acquisition of strategicminerals. The sector needs to systematically invest towards:7.2.1 Exploring and expanding the resource and reserve basefor minerals having adequate potential in India (iron ore, bauxite,lead, zinc, etc.). The following initiatives are necessary to enhancemineral exploration in India:• The current geological survey efforts of the GSI should beincreased further. GSI should coordinate with concerned agenciesGeological Programming Board.• GSI should digitise and make the baseline data (existing data andadditional data generated by GSI and private sectorreconnaissance) publicly available on its internet portal to enableexploration companies in their exploration effort.• GSI is planning four major programmes in the next 10 years7including online GIS, national geochemical mapping and nationalaeromagnetic mapping.• GSI and progressively, the State Directorates, should step upregional resource assessment activities to identify knownmineralisation areas.• In addition, GSI should coordinate with the Ministry of EarthSciences to assess mineral potential in offshore areas (includingexclusive economic zone, territorial waters, international waters)and create a plan to enable exploration and development ofresources.7.2.2 Internationally acquiring strategic minerals with lowavailability. These include cobalt, nickel, fertiliser minerals, etc. thathave low reserve base, lower likelihood of future finds in India andscarce supply/consolidated market structure globally.The acquisition of these key minerals will require to conduct a 25-yeardemand–supply analysis for India and prioritise the resources to beacquired, and to prioritise the geographies to be targeted forresource acquisition / supply.7.3 Reducing permit delays to create a more favourable policyenvironment: With the passing of new MMDR Bill, 2011 in the next

few months and then to put in place the structural mechanisms forreducing permit delays.7.4 Setting up core enablers for mining—infrastructure, humancapital and technology: A set of core enablers across infrastructure,human capital and technology are necessary to support the growth ofthe mining sector.7.4.1 India needs to develop infrastructure capacity to support themining sector: Developing infrastructure capacity to support the miningsector will require collaboration with railways, ports and surfacetransport ministry to pursue the top 50 infrastructure projects (railwaysidings, trunk lines, doubling of track, use of better equipment) for themining sector.87.4.2 To take steps to bridge the impending shortage of humancapital in mining, especially for mining engineers, diploma holdersand skilled/semi-skilled labour. This will require:• increase in the mining engineering seats by around 4,000 over 10years (three times the current number) in relevant institutes.• to include mining-specific courses at ITIs in the six major miningstates.• to include mining as a priority sector in the National SkillDevelopment Corporation (NSDC) charter to facilitate privatesector participation in skill development for the mining sector.In the long-term, create an ecosystem to support joint researchprograms by GSI, IBM with participation from academic institutions,industry players and foreign research agencies.7.5 Ensuring sustainable mining and development: Draftsustainability development framework (SDF) is progressive and istailored to the unique national context. To enforce the overall framework,the following additional measures are required:• Enforce critical components of sustainability through regulatorychanges e.g., increase financial commitment for mine closure andlink it to post-closure rehabilitation cost (e.g., financial guarantee inQuebec is 70 per cent of the post-closure cost).• Once SDF is accepted, clearly define the activities required toimplement SDF principles, provide best-practice case studies andflesh out concepts for implementation.7.6 Creating an information, education and communication plan7.6.1 The Indian mining sector has seven key stakeholders: localcommunity, public representatives (NGOs, MLA, panchayats), central

government bodies (Planning Commission, PMO, etc.), relatedministries (MOEF, Railways, etc.), State Governments, mining sectorecosystem (mining and associated legal/financial companies) and theinternational community. To communicate three key themes to itsstakeholders:9• The mining sector is critical for the country in terms of GDP growth,tax, employment, and as an enabler of industrialisation.• Mining activity can be stepped up in a responsible and sustainablemanner while generating benefits for and addressing concerns ofall stakeholders.• The transformation agenda for the Indian mining sector needs to bedeveloped keeping in mind the unique challenges and context.7.6.2 This will require active participation of all concernedstakeholders. The above themes are to deliver through anInformation, Education and Communication (IEC) plan based on fourdesign principles:• Prioritising themes by stakeholders: For instance, centralgovernment bodies and other ministries need to understand thesignificance of mining in India, and the international communityneeds to be informed about the unique realities of India and theprogressive measures adopted by the Ministry of Mines.• Choosing the right medium of communication: This is importantto reach various stakeholders. For example, meetings with NGOsand local panchayats can address the concerns of localcommunity; setting up mining parks will educate the broadercommunity on the benefits of mining, etc.• Multiple stakeholders must drive communication efforts:These include the Ministry of Mines, state governments, as well asmining companies.• Bring about tangible, visible change through relevantstakeholders: This would be the most credible element of the IEC.10