Peter F Drucker (1909-2005)

Father of modern management (theory and practice.)

There is only one valid definition for business purpose, that is to create a
customer
Father of MBO
Expert’s Expert
MBO- Practice of management (1954)
Books
1. Practice of Management
2. Management by result
3. The effective executive
4. Age of discontinuity
5. Management Challenges for the 21st Century
6. The end of an economic man
7. Frontiers of management
Contributions
1. MBO
2. Nature of Management
3. Management function
4. Federal decentralisation
5. Organisational change
Management by Objective
Also called management by results
It is a participative management style.
Participation, integration and continuity is the key of MBO.
specific objectives are established for different levels – from individual
employees to teams and the entire company. These objectives should be specific,
measurable, achievable, relevant, and time-bound (SMART).
The principle behind Management by Objectives (MBO) is to make sure that
everybody within the organization has a clear understanding of the aims, or
objectives, of that organization, as well as awareness of their own roles and
responsibilities in achieving those aims..

The complete MBO system is to get managers and empowered employees acting to
implement and achieve their plans, which automatically achieve those of the
organization.
Process of MBO
1. Define organizational goals
2. Define employees objectives
3. Continuous monitoring performance and progress
4. Performance evaluation
5. Providing feedback
6. Performance appraisal
Principles
Cascade of Objectives: Objectives are set at various levels of the organization,
from top management to individual employees.
Specific objective for each member
Participative decision making
Explicit time period
Performance evaluation and feedback
MBO Strategy: Three Basic Parts
All individuals within an organization are assigned a special set of objectives that
they try to reach during a normal operating period. These objectives are mutually set
and agreed upon by individuals and their managers.

Performance reviews are conducted periodically to determine how close individuals

are to attaining their objectives.

Rewards are given to individuals on the basis of how close they come to reaching
their goals
Key result Areas
Market standing
Innovation
Productivity
Physical and financial resources
Profitability
Managers performance and development
Workers performance and attitude
Public responsibility
Smart goal
MBO brought the concept of SMART Goal
Specific

Measurable

Achievable

Relevant, and

Time bound.
Nature of Management :
According to Durcker the basic objective of management is to lead towards
innovation.
He advocates that management is creative and innovative in nature rather than
bureaucratic.
Management function
According to Drucker, management is the organ of its institution. He sees
management through its tasks.
Drucker has attached great importance to the objective setting function and has
specified eight areas where clear objective setting is remained.

These are market standing, innovation, productivity, physical and financial resources,
profitability, managerial performance and development, worker performance and
attitude and public responsibility.
Federal decentralisation (Division of power)
It is a concept of centralised control in decentralised structure.
Decentralised structure goes far beyond the delegation of authority
This is just like a relationship between federal government and state
governments.
the whole of the enterprise is conceived as made up of autonomous units.
The federal enterprise and all its units are in the same business.
In this federal company, all the units are working toward the same goal. They
are affected by the same things and have to make similar important decisions.
They need the same type of leader. So, there should be one group in charge of the
important tasks: deciding what the company should do, organizing the people who
work there, and picking and training future leaders.

But each individual part of the company is also like its own small business. It creates
its own products for a specific group of customers. So, each part needs some freedom
to make its own decisions, as long as these decisions fit with the overall plan set by
the main group.
Organisation Changes :

Drucker has forecasted that organizations face many changes because of rapid social
and technological changes.

Hence dynamic organization structures are essential than static and bureaucratic
structures.
C.K Prahalad and Gary Hamel
Coimbatore Krishnarao Prahalad

Core competence: Unique capability which cannot be imitated by its rivals

(Apple)

Strategic Intent: it is a desired leadership position (vision). It's about knowing

where you want to go and using that vision to make decisions and take actions
that help you get there. It's like having a big, exciting destination in mind and
planning your journey to reach it.
Strategic Stretch, leverage and fit:

Subsequent to the idea of strategic intent, Hamel and Prahalad added the concept of ‘stretch’
‘leverage’ and fit.

stretch is the gap between the firm’s aspirations and its available resources. It means that the
firm has high ambitions but lacks the resources to achieve them. For example, a small start-up
company may have a vision to become a global leader in its industry, but it does not have
enough money, talent, or technology to compete with established players.
Strategic leverage is the process of using the firm’s resources in innovative and
creative ways to overcome the gap of strategic stretch. It means that the firm
concentrates, accumulates, complements, conserves, and recovers its resources to
maximize their value and impact. For example, a small start-up company may
leverage its resources by forming partnerships with other companies, outsourcing
some functions, developing unique competencies, and learning from its mistakes.
Strategic fit is the alignment of the firm’s resources with its environment and
opportunities. It means that the firm matches its strengths and weaknesses with the
threats and opportunities in the market. For example, a small start-up company may
find a strategic fit by focusing on a niche segment, offering a differentiated product or
service, or exploiting a technological innovation.
To achieve Strategic Intent, we need to Stretch.

1. Understanding stretch: Now we need to understand the gap between aspirations

and available resource (i.e. stretch).

2. Leveraging: In this, instead of focusing on scarcity we should focus on optimization

of resources through innovation. This is called resourcefulness.

3. Strategic Fit: Here we can use techniques like SWOT analysis to assess and manage
organisational capabilities and environmental opportunities to matching its
organisational resources to its environment
CK Prahlad Books

The Fortune at the Bottom of the Pyramid

Competing for the Future

Michael Porter (contributions)
1. Five force analysis

2. Generic competitive strategy

3. Value chain analysis

4. Diamond model
1. Five force analysis

Porter's Five Forces is a model that identifies and analyses five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths.

Five Forces analysis is frequently used to identify an industry's structure to determine

corporate strategy
a. rivalry among existing competitors
The number of competitors and their ability to undercut a company.
The larger the number of competitors, along with the number of equivalent products
and services they offer, the lesser the power of a company to compete.
Suppliers and buyers seek out a company's competition if they are able to offer a
better deal or lower prices.
Conversely, when competitive rivalry is low, a company has greater power to charge
higher prices and set the terms of deals to achieve higher sales and profits.
b. Threats of New entry

The less time and money it costs for a competitor to enter a company's
market and be an effective competitor, the more an established company's
position could be significantly weakened.

An industry with strong barriers to entry is ideal for existing companies
within that industry since the company would be able to charge higher prices
and negotiate better terms.
C. Power of Suppliers

The fewer suppliers to an industry, the more a company would depend on a supplier.

As a result, the supplier has more power and can drive up input costs and push for
other advantages in trade.

On the other hand, when there are many suppliers or low switching costs between
rival suppliers, a company can keep its input costs lower and enhance its profits.
D. Power of Customers
The ability that customers have to drive prices lower or their level of power is one of
the Five Forces.
It is affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new customers or
markets for its output.
A smaller and more powerful client base means that each customer has more power
to negotiate for lower prices and better deals.
A company that has many, smaller, independent customers will have an easier time
charging higher prices to increase profitability.
E. Threat of Substitutes
Substitute goods or services that can be used in place of a company's
products or services pose a threat.
Companies that produce goods or services for which there are no close
substitutes will have more power to increase prices and lock in favourable
terms.
When close substitutes are available, customers will have the option to forgo
buying a company's product, and a company's power can be weakened.
2. Generic competitive strategy
Cost Leadership Strategy: A company aims to become the low-cost producer
in its industry while maintaining acceptable levels of quality.
Differentiation Strategy: With this strategy, a company seeks to create a
unique and distinct product or service that is perceived as superior by
customers.
Focus Strategy: The focus strategy involves targeting a narrow or specific
segment of the market and tailoring products, services, or marketing efforts to
meet the needs of that particular segment
Focused differentiation: targeting a narrow market segment and offering
unique and differentiated products or services specifically tailored to the
needs and preferences of that segment.
3. Value chain Analysis

strategic tool used to analyse internal firm activities to identify most valuable
to the firm, and which is to be improved to provide competitive advantage
4. Diamond Model

also known as Porter’s National Competitive Advantage Theory or Porter’s Diamond

Theory

It is a framework developed by Michael E. Porter to explain why certain industries

and nations are more competitive than others in the global marketplace.

The Diamond Model consists of four interconnected components, or determinants,

that influence a nation's competitive advantage:
1. Factor Conditions: These represent a nation's inherent resources and capabilities,
including its workforce, infrastructure, education system, and natural resources.
These factors provide the foundation for competitiveness in a particular industry.

2. Demand Conditions: The level and nature of domestic demand for a product or
service play a crucial role in shaping a nation's competitive advantage. Strong and
sophisticated domestic demand can drive innovation and improvements in
product quality.
3. Related and Supporting Industries: The presence of strong and competitive
supporting industries and suppliers can enhance a country's competitive
advantage. These industries can provide specialized inputs, technology, and
knowledge that are critical for the industry's success.

4. Firm Strategy, Structure, and Rivalry: The way firms are organized, their
competitive strategies, and the intensity of competition within a nation's industry
all contribute to its competitive advantage. Vigorous competition can encourage
firms to innovate and improve their efficiency.