Year: 2020

An organizational system is, quite simply, how a company is set up. A good organizational structure lays out both a hierarchy and the flow of communication in a company. It is important for every business, no matter its size, to implement an organizational system. There are many benefits to having a well-defined organizational structure, including improved efficiency, productivity and decision-making. Each structure has its strengths and weaknesses. Ultimately, these pros and cons depend on the type of business you run, your industry, the size of your organization and other factors. It is important to consider every kind of organizational system before deciding which is right for your company.

Organizational Systems

An organizational system is the structure of how an organization is set up. That structure defines how each division of a business is set up, the hierarchy of who reports to whom and how communication flows throughout the organization. Broken down even further, an organizational structure defines how each role in an organization functions. With a well-defined organizational structure in place, all employees know what is expected of them and to whom they report. Business owners should think long and hard about which system to choose, as each organization has unique needs. An organizational structure that is right for one company will not be right for another.

Examples of Organizational Systems in Business

There are four main types of organizational structures: functional, divisional, matrix and flat. Each system has unique features.

1. Functional organizational structure

A functional organizational structure is a traditional hierarchy. Many companies, especially larger corporations, follow the functional structure. This system features several specialized divisions such as marketing, finance, sales, human resources and operations. Then a senior manager oversees all the specialized divisions. The reporting flow is clear. Each employee reports to their senior, including division heads, who report to the senior management. Senior management oversees the entire structure. Because the company remains split up into specialized divisions, employees tend to become specialized as well. This causes a clear path for promotion and growth. However, the divisions can have trouble communicating with one another. Because all departments report upwards, there is little horizontal communication between them, leaving little space for holistic, whole-company thinking, except at the top management level. This makes the functional organizational system slow to adapt to change.

2. Divisional organizational structure

A divisional organizational structure divides the business up into teams based on the projects the employees are working on. This system includes many different types of teams, including legal, public relations, research and business development. Further, teams are created around specific projects. For example, a pharmaceutical company might have separate teams dedicated to each medication they manufacture. Each project team has a director or vice president and exercises a certain level of autonomy within the organization. The divisional structure allows employees to become deeply familiar with their team’s work. However, divisions are often unaware of what other teams are doing, and do not communicate with each other. Employees may not be able to work effectively across divisions when necessary. Ultimately, this system can be challenging to manage due to its spread-out structure.

3. Matrix organizational structure

A matrix system is a cross between a functional structure and a divisional structure. From a birds-eye perspective, the business is set up in a functional structure, with a traditional hierarchy and specialized divisions. However, when you look at those divisions up close, they are each set up in a divisional organizational structure. This means they are split up into projects and smaller teams. The matrix type of organizational structure is quite complex and requires a lot of planning, not to mention strong systems of communication across the organization. However, when the matrix structure works well, it eliminates a lot of the issues that pop up with divisional or functional-only organizations. Communication can travel to the right people, which increases productivity and holistic thinking. Further, employees are exposed to other departments and projects, encouraging cross-collaboration. On the downside, the matrix structure can quickly become confusing for employees when there are too many managers, and it’s not clear who to report to.

4. Flat organizational structure

Flat organizational structure flattens much of the hierarchy and allows employees more autonomy over their work. Often, flat organizations are split up into temporary teams, although they usually do not have formal structures. There are still some top-down dynamics in a flat system. Often, there is at least some senior leadership steering the ship. However, this system is predicated on disrupting the traditional hierarchical structures of businesses. Many startups and tech companies tend towards a flat organization, as it encourages innovation and employee input. The thinking is that when employees are not tamped down by red tape, they will think freely and generate fresh, profitable ideas. This increases communication across teams and eliminates some of the communication issues that can happen when messages travel up a top-down structure. Unfortunately, a flat system is difficult to maintain as a company grows, and the need for more structured communication systems comes into play. Further, employees in a flat organization can become overwhelmed with doing too many different tasks, and do not have a lot of room to grow or be promoted.

Why Businesses Need Organizational Systems?

Organizational systems are important for businesses of every size. Having a solid, well-defined structure in place erases confusion and lays out simple processes for employees to follow. Each worker should know exactly who they report to. Without some type of hierarchy or structure in place, a workplace can become chaotic. Employees may not understand who is responsible for what, causing important things to fall through the cracks. A solid organizational structure streamlines a company and keeps everyone on the same page.

An organizational system puts every person in their correct place, able to contribute their part to the company. Having a system improves overall efficiency, heightens productivity and provides clarity to everyone in the organization. Every department can work better when roles are clearly defined and objectives are shared. Further, the proper organizational system can improve decision-making, as information flows throughout the organization. Upper-level managers can collect information from all divisions, giving them greater insight into the entirety of a company’s operations.

A solid organizational system eliminates many business problems, including the duplication of work and conflicts between positions. If a business has been well-thought-out, each employee has a distinct role, and roles do not overlap with one another. There is no “runaround” where nobody is sure who is responsible for a particular task or project. Because of this, cooperation is increased and employees feel a sense of pride in their work. Workers avoid the frustration of having ever-shifting roles and goal posts. They can focus on what they do best.

Choosing the proper organizational system can take your business to the next level. For example, if your business is product-based, a matrix or divisional structure will likely be ideal. These are project-based structures that focus on specialized teams. Small startups, on the other hand, may consider a flat structure to allow all employees to contribute their skills and expertise without the hierarchy interfering.

Examples of Businesses with Organizational Systems

Examples of the functional system: Functional organizational systems have historically been used by the military, universities and government entities. Over the years, functional hierarchies have become less popular, and many organizations have moved away from them. However, they are still in use by certain businesses. One example of how this type of organizational system might be used is in a traditional factory setting. The factory manager oversees the different divisions of the factory, which are each specialized. Each division has its own manager, all of which report directly to the overseeing factory manager. Another example could be a retail store. A store manager oversees the operations from the top of the pyramid. Below are different departments. Perhaps there is one for inventory, one for customer service and one for marketing and promotions. Each has its own supervisor, and all report to the general manager.

Examples of the divisional system: Divisional systems are popular with large, multinational corporations. For example, Johnson & Johnson has a divisional structure. Each of Johnson & Johnson’s brands operates as its own company, with its own leadership and internal structure. All of those brands report to the parent company. Another example of a divisional organizational structure is General Electric. The CEO sits at the top, and beyond that, the company is split up into different groups. There are some operational groups, such as those for finance, legal, public relations and global research. Some teams are devoted to specific projects, including aviation, energy, health care and more.

Examples of the matrix system: A matrix organizational system is complex, and therefore mostly adopted by large, well-established companies. One famous example of a matrix company is Starbucks. The world’s largest coffee company uses a functional structure to split its business up into divisions, including HR, financing and marketing. These departments are located at the brand’s corporate headquarters and report to the upper levels of management. The HR department, for example, creates policies that affect all Starbucks locations across the board. Next, Starbucks has separate divisions for each geographic region. These regions include the Americas, China and Asia-Pacific, Europe, Middle East, Russia and Africa. The Americas region, being the most popular for the company, is further split into four smaller divisions. Starbucks also has product-based divisions. For example, there is one division for merchandise like the Starbucks mugs and another for baked goods. At the lower levels of the organization, Starbucks has teams of employees, especially at the store level. This complex matrix structure serves the coffee giant well, allowing the company to operate thousands of stores across the country successfully.

Examples of the flat system: Flat systems are popular among startups and tech companies. One famous example of the flat system is Zappos. In 2013, the massive shoe company’s CEO announced a new management structure called holacracy, a setup to encourage collaboration by eliminating workplace hierarchy. The company banned manager titles. It would no longer have job titles and there would be no bosses. Every employee would be in charge of their own work. The company hoped to spark innovation and creation by doing away with the red tape involved in hierarchy and decision-making. However, Zappos struggles to keep operations truly flat.

This is a struggle of many large companies that implement a flat structure. Many startups have spoken about the difficulty of maintaining a flat organizational structure when experiencing exponential growth. Studies find that employees find hierarchical structures comforting and practical. So, a flat organizational structure is perhaps a good option for a business that is in its early stages, to spur innovation and growth. However, most larger companies move away from a flat system as it can become cumbersome to manage over time.

Implementing corporate strategy requires a team effort headed by your organization’s leadership team. Each person involved in change management has their responsibilities, and it is important for the entire organization to understand the role of leadership in strategic implementation to make delegating responsibility more effective.

1. Involvement

Strategic implementation of any kind of new company policy or program requires participation from all of the departments that will be affected. Company leadership needs to identify what those departments are and create an implementation team that consists of representatives from each affected group. Management needs to create a structure that identifies various group leaders, the responsibilities of those group leaders and an accountability system that insures that the implementation team meets its timetable for getting the new program or policy in place.

2. Interest

Implementing change or any new strategy within a company requires a feeling of urgency on the part of the entire company. It is the job of management to create that urgency by explaining to the staff why the implementation is necessary. Leadership needs to help the employees understand how the company benefits from the new implementation, but it also needs to get the organization to see the setbacks of not making a change.

3. Monitoring

Strategic implementation within a company is not an exact process. It is a dynamic procedure that needs to be monitored by management and altered to meet implementation goals. It is the responsibility of leadership to put a monitoring system in place, analyze the data that is being generated during the implementation and make any necessary changes to make the implementation more efficient.

4. Communicating Plans

Strategic implementation begins with setting goals and communicating these to workers. Prioritize your objectives, put resources at employees’ disposal, explain the processes and, above all, transmit your vision to your team. Communicating well means your listeners comprehend your words and are able to put them into action. For example, when describing how to implement a new software program, use layman’s terms when talking to those who are not computer specialists. Give the information in small, digestible chunks and test understanding before moving on.

5. Giving Out Assignments

Proper delegation helps guarantee a smooth implementation of business strategy. The manager charged with strategic implementation must be able to pick out the people and teams best able to move the project forward. Leading the implementation requires taking pains to discover and test the abilities gifts of her staff. She should establish mini-leaders over various segments of the process who understand the scope of the implementation. These people will report directly to the overall manager and will be responsible for guiding their own groups. Pick enthusiastic, imaginative and people-oriented employees for these roles.

6. Monitoring Execution

Participate in all avenues of the strategic implementation. Ask questions while observing what your employees do in order to understand all the processes involved. Ask your group leaders for weekly progress updates. Keep abreast of the problems that arise and handle them expeditiously. Document the process carefully so you and others can refer to the literature for future ventures. Be flexible. If something does not work well in the way you have designed it, find other avenues until you find something that works better. Always take care not to micromanage your employees as you monitor the processes but instead be an involved leader who joins in the work to make it better.

7. Encouraging Staff

Your attitude will prove contagious for the staff. If you are energetic and willing to give your best to the company, others will follow suit. When encouraging your staff you need to be a consistent role model who stays on tasks, works to solve problems and keeps to a schedule. You want your employees to emulate your behavior without having to lecture them on what how to act and perform in the workplace. For example, if you are always on time and get to work quickly on the implementation process, your staff will understand the need to do so as well. Create a culture of encouragement by praising hard work, passionate exhibitions and creativity in individual efforts. Your staff will appreciate the recognition.

Company policies and procedures establish the rules of conduct within an organization, outlining the responsibilities of both employees and employers. Company policies and procedures are in place to protect the rights of workers as well as the business interests of employers. Depending on the needs of the organization, various policies and procedures establish rules regarding employee conduct, attendance, dress code, privacy and other areas related to the terms and conditions of employment.

Employee Conduct Policies

An employee conduct policy establishes the duties and responsibilities each employee must adhere to as a condition of employment. Conduct policies are in place as a guideline for appropriate employee behavior, and they outline things such as proper dress code, workplace safety procedures, harassment policies and policies regarding computer and Internet usage. Such policies also outline the procedures employers may utilize to discipline inappropriate behavior, including warnings or employee termination.

Companies are increasingly paying attention to bullying behavior as a serious issue and beginning to adopt policies in this area as well. Anti-bullying policies focus on repeated hostile behaviors, identify reporting mechanisms and describe the consequences for employees who engage in persistent bullying behavior.

Equal Opportunity Policies

Equal opportunity laws are rules that promote fair treatment in the workplace. Most organizations implement equal opportunity policies anti-discrimination and affirmative action policies, for example to encourage unprejudiced behavior within the workplace. These policies discourage inappropriate behavior from employees, supervisors and independent contractors in regard to the race, gender, sexual orientation or religious and cultural beliefs of another person within the organization.

Attendance and Time Off Policies

Attendance policies set rules and guidelines surrounding employee adherence to work schedules. Attendance policies define how employees may schedule time off or notify superiors of an absence or late arrival. This policy also sets forth the consequences for failing to adhere to a schedule. For example, employers may allow only a certain number of absences within a specified time frame. The attendance policy discusses the disciplinary action employees face if they miss more days than the company allows.

Substance Abuse Policies

Many companies have substance abuse policies that prohibit the use of drugs, alcohol and tobacco products during work hours, on company property or during company functions. These policies often outline smoking procedures employees must follow if allowed to smoke on business premises. Substance abuse policies also discuss the testing procedures for suspected drug and alcohol abuse.

Workplace Security Policies

Policies on security are in place to protect not only the people in an organization, but the physical and intellectual property as well. Policies may cover entrance to a facility, such as the use of ID cards and the procedures for signing in a guest. Equipment such as a company laptop or smartphone may need to be signed out.

Computer security is a high priority for firms these days. Policies cover a variety of topics, such as the frequency for changing passwords, reporting phishing attempts and log-on procedures. Use of personal devices, such as a USB drive you bring from home, may also be restricted to prevent to unintended spread of computer viruses and other malware.

A financial market is a word that describes a marketplace where bonds, equity, securities, currencies are traded. Few financial markets do a security business of trillions of dollars daily, and some are small-scale with less activity. These are markets where businesses grow their cash, companies decrease risks, and investors make more cash.

A Financial Market is referred to space, where selling and buying of financial assets and securities take place. It allocates limited resources in the nation’s economy. It serves as an agent between the investors and collector by mobilizing capital between them.

In a financial market, the stock market allows investors to purchase and trade publicly companies share. The issue of new stocks are first offered in the primary stock market, and stock securities trading happens in the secondary market.

The financial market provides a platform to the buyers and sellers, to meet, for trading assets at a price determined by the demand and supply forces.

Functions of Financial Market

The functions of the financial market are explained with the help of points below:

• It facilitates mobilisation of savings and puts it to the most productive uses.
• It helps in determining the price of the securities. The frequent interaction between investors helps in fixing the price of securities, on the basis of their demand and supply in the market.
• It provides liquidity to tradable assets, by facilitating the exchange, as the investors can readily sell their securities and convert assets into cash.
• It saves the time, money and efforts of the parties, as they don’t have to waste resources to find probable buyers or sellers of securities. Further, it reduces cost by providing valuable information, regarding the securities traded in the financial market.

The financial market may or may not have a physical location, i.e. the exchange of asset between the parties can also take place over the internet or phone also.

Classification of Financial Market

1. By Nature of Claim

• Debt Market: The market where fixed claims or debt instruments, such as debentures or bonds are bought and sold between investors.
• Equity Market: Equity market is a market wherein the investors deal in equity instruments. It is the market for residual claims.

2. By Maturity of Claim

• Money Market: The market where monetary assets such as commercial paper, certificate of deposits, treasury bills, etc. which mature within a year, are traded is called money market. It is the market for short-term funds. No such market exist physically; the transactions are performed over a virtual network, i.e. fax, internet or phone.
• Capital Market: The market where medium and long term financial assets are traded in the capital market. It is divided into two types:
• Primary Market: A financial market, wherein the company listed on an exchange, for the first time, issues new security or already listed company brings the fresh issue.
• Secondary Market: Alternately known as the Stock market, a secondary market is an organised marketplace, wherein already issued securities are traded between investors, such as individuals, merchant bankers, stockbrokers and mutual funds.

3. By Timing of Delivery

• Cash Market: The market where the transaction between buyers and sellers are settled in real-time.
• Futures Market: Futures market is one where the delivery or settlement of commodities takes place at a future specified date.

4. By Organizational Structure

• Exchange-Traded Market: A financial market, which has a centralised organisation with the standardised procedure.
• Over-the-Counter Market: An OTC is characterised by a decentralised organisation, having customised procedures.

Since last few years, the role of the financial market has taken a drastic change, due to a number of factors such as low cost of transactions, high liquidity, investor protection, transparency in pricing information, adequate legal procedures for settling disputes, etc.

Types of Financial Markets

1. Over the Counter (OTC) Market

They manage public stock exchange, which is not listed on the NASDAQ, American Stock Exchange, and New York Stock Exchange. The OTC market dealing with companies are usually small companies that can be traded in cheap and has less regulation.

2. Bond Market

A financial market is a place where investors loan money on bond as security for a set if time at a predefined rate of interest. Bonds are issued by corporations, states, municipalities, and federal governments across the world

3. Money Markets

They trade high liquid and short maturities, and lending of securities that matures in less than a year.

4. Derivatives Market

They trades securities that determine its value from its primary asset. The derivative contract value is regulated by the market price of the primary item the derivatives market securities, including futures, options, contracts-for-difference, forward contracts, and swaps.

5. Forex Market

It is a financial market where investors trade in currencies. In the entire world, this is the most liquid financial market.

1. Assess your business’s health

In the months leading up to a recession, consumer spending and available capital can both decline, which can cause a business to feel a pinch in their budgets.

This means some difficult decisions may have to be made regarding product pricing, marketing initiatives, hiring, benefits and even new launches. While each business will experience a recession in unique ways, the most common challenges faced by companies of all sizes include:

• Temptation to cut product size, quality and benefits or raise prices. When lagging sales no longer pay for the cost of doing business, businesses may look to products to find wiggle room in the operating budget.
• Not enough capital to pay employees. Companies may feel they can no longer pursue plans to expand operations, pay bonuses or even keep the workers they have.
• Lower employee morale and productivity. Frequent layoffs and employees asked to do more with less can lead to a culture of apprehension. Productivity can suffer when employees feel uncertain and unmotivated by bad news.

Data is the best way to meet these challenges head on. It’s vital to understand what the metrics say about your day-to-day operations, even when they show that your company may be suffering.

Try to answer these questions:

• Are there inefficiencies regarding your product or service offerings?
• How much talent can we afford right now? How far can we really stretch people?
• What resources do you need to maintain or exceed current output?

2. Implement change

Now that you’ve identified the trouble areas of your business, it’s time to make changes that will make your business more resilient in this (and every) economic climate.

This could include:

• Realigning your staff or restructuring your organizational chart
• Evaluating products and services to ensure the market demands continue to be met for your clients
• Readjusting benchmarks and projected growth targets

Not every problem can be solved at once. Prioritize issues with the highest potential to damage to your customer satisfaction, business culture and bottom line.

Actions to take:

• Personnel: Can you consolidate redundancies? Can the job of two workers be performed by one? Is job-sharing an appropriate solution? Could the non-essential employee be moved to an area where talent is scarce? While layoffs are never ideal, struggling companies can’t afford to pay for repetitive processes.
• Products and services: Consider reducing or eliminating products that don’t generate profits or with low profit margins. Look at the labor required for each product. If most of your employees’ time is spent on low-margin products, then perhaps their time can be better spent on your profit centers.

These changes may not come easy to your staff. And having difficult conversations with employees is, well, difficult. Approach the conversations around downsizing and other sensitive matters carefully.

Things to consider:

• Tackle the issues head-on: Keeping the news private about layoffs or other changes can do more harm than good. What you fail to tell your workers can end up becoming a PR nightmare. Get ahead of rumors by having an honest dialogue with your team. Be transparent by being honest about hard truths, and your employees will respect you for it.
• Don’t let work fall by the wayside: Be conscious of the fact that changes to your workforce may make the business vulnerable to inefficiencies. The impact of the recession should be mitigated so that the customer doesn’t feel your internal strife.

3. Maximize your talent

When the recession puts a squeeze on your resources, including your human capital, consider how you can maximize the teams you already have in place.

This could include:

• Providing encouragement and reassurances to your existing leaders and staff
• Identifying undiscovered leaders in your organization and calling on them to step up

Actions to take:

• Rally the troops: Explain that while these may be tough times, the tide will change. If everyone bands together, the company will persevere. Remind them that their hard work is valued and does not go unnoticed or unappreciated.
• Identify leaders: Ask your staff to help identify unrecognized natural leaders. Is there someone that everyone relies on during stressful times? Who is the person who answers questions, provides guidance and acts as a peer mentor without being asked? Once identified, encourage these high producers to take on more responsibility and fill in gaps.  
• Track everything: Use metrics to track and recognize core competencies. Understand who is on the bench and whether they can assume extra responsibility. That way you can begin to cross train team members.  
• Always listen: Regularly solicit feedback from your leaders, heavy hitters and regular employees. Their intimate knowledge of the company could inspire innovative solutions to problems both small and systemic. Having this type of buy-in can keep morale high and productivity consistent.

4. Meet the needs of your employees

A recession is hard on everyone, and while it can have a damaging impact on morale, you need your employees to be more efficient and productive than ever.

You achieve this by understanding your employee’s personal needs.

Listen to your employees. If you experience recession-induced stress in the workplace, it’s likely that employees are suffering through financial, emotional or interpersonal strains at home, as well.

This is more important than ever during a recession, especially with employees taking on extra responsibility.

Actions to consider:

• Offer intangible perks: Knowing how to motivate employees outside of monetary compensation is essential. Flexible scheduling allowing employees to take time off or work remotely is one popular intangible perk. As you implement these changes, closely monitor productivity. Don’t let relaxed oversight lead to decreased employee output.  
• Make every manager an advocate for mental and emotional health: Educate employees on how mental health issues can affect the workplace. Ensure that managers are prepared to offer help, follow wise protocol and avoid developing stigmatizing prejudices.
• Use your employee assistance program: These programs can be a great asset for employees struggling through various issues.

5. Recession proof your business

Business owners who understand that recessions are normal and should be expected can prepare for them. Those who plan for all possible outcomes are best poised to survive.

Actions to take:

• Think long-term: Planning can take much of the unknown out of the equation. Give leaders tools for training, productivity, communication and mitigation long before they need it.
• Conduct regular checkups: Instead of entering crisis mode once a recession hits, use every opportunity to gauge the health of your business. Use data to guide how you build efficient teams, foster new leadership and support your employees’ well-being. Those that are proactive, rather than reactive, may get better results.

The Stability Strategy is adopted when the organization attempts to maintain its current position and focuses only on the incremental improvement by merely changing one or more of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or collectively.

Generally, the stability strategy is adopted by the firms that are risk averse, usually the small scale businesses or if the market conditions are not favorable, and the firm is satisfied with its performance, then it will not make any significant changes in its business operations. Also, the firms, which are slow and reluctant to change finds the stability strategy safe and do not look for any other options.

Under the Stability strategy, a company where stops the expenditure on expansion, do not introduce new products or venture into new markets rather decides to focus on the current portfolio and market share.

To put it simply, stability strategy is one of “taking stock of the situation.” Stability can be a bid time option. Stability allows an organization to plan for reorganization before growth.

Stability strategy is followed when the organization decides to maintain the current level of business.

It chooses not to be aggressive in its search and movement towards new markets or the development of new products. There is an incremental improvement in functional performance.

While pursuing stability, organizations need to draw up a plan to get moving either by investments in research and development or by divesting non­performing areas to free capital for new promising areas.

Stability seems “a not-much-action-going-on” phase, but the organization in its functional areas is trying furtively to do something new.

Stability Strategies could be of three types:

• No-Change Strategy
• Profit Strategy
• Pause/Proceed with Caution Strategy

To have a better understanding of Stability Strategy go through the following examples in the context of customer groups, customer functions and technology alternatives.

• The publication house offers special services to the educational institutions apart from its consumer sale through the market intermediaries, with the intention to facilitate a bulk buying.
• The electronics company provides better after-sales services to its customers to make the customer happy and improve its product image.
• The biscuit manufacturing company improves its existing technology to have the efficient productivity.

In all the above examples, the companies are not making any significant changes in their operations, they are serving the same customers with the same products using the same technology.

Pathways to Stability Strategy

1. Do Nothing Strategy

This is a stage when the organization finds itself in placid waters.

There is no appreciable change in its industry environment, and there is no area in which the organization would venture of its own, so it does what it has been doing without any significant change. The organization is reactive, and this strategy serves a small niche business.

2. Profit Strategy

Organizations facing threats and reducing margins opt for this strategy by curtailing discretionary expenditure and investment. This is a short-term strategy as, in the long term curtailing investments also erodes the organization’s competitiveness.

It is a strategy to be followed only to give management a breather, not as a smokescreen to hide passivity or wrong decisions.

3. Pause Strategy

What happens when you sprint 200 meters?

You feel breathless and sit down to recoup.

Similarly, organizations that grow rapidly in fast ­growing markets need to assess their operations, pause, and invest in developing resources commensurate with growth to grow further.

According to Michael Dell, the founder of Dell Computers, the company grew so rapidly after its e-retailing that it had to slow down to create an organization with systems for operations in 95 countries, sales of USD 2 billion, and approximately 5700 employees!

The product market scope refers to the industries to which the organization confines itself. When an organization follows the expansion strategy, the marketing or the production function underlie some degree of commonality between the different businesses it operates in.

Expansion and thereby, growth results from concentrating the resources within the domain of one or more businesses allied in terms of customer needs, functions, or technology.

For example, lowering the price of a combo meal in fast food restaurant to compete with local offers, market development (Malaysia Tourism’s aggressive “Malaysia Truly Asia” campaign to attract tourists), and product development (skincare products in addition to the eye care products by a pharmaceutical company; non­beef, non-pork products by McDonald’s in parts of Asia).

The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the scope of one of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or jointly, then it follows the Expansion Strategy.

The reasons for the expansion could be survival, higher profits, increased prestige, economies of scale, larger market share, social benefits, etc. The expansion strategy is adopted by those firms who have managers with a high degree of achievement and recognition. Their aim is to grow, irrespective of the risk and the hurdles coming in the way.

The firm can follow either of the five expansion strategies to accomplish its objectives:

• Expansion through Concentration
• Expansion through Diversification
• Expansion through Integration
• Expansion through Cooperation
• Expansion through Internationalization

Go through the examples below to further comprehend the understanding of the expansion strategy. These are in the context of customer groups, customer functions and technology alternatives.

• The baby diaper company expands its customer groups by offering the diaper to old aged persons along with the babies.
• The stockbroking company offers the personalized services to the small investors apart from its normal dealings in shares and debentures with a view to having more business and a diversified risk.
• The banks upgraded their data management system by recording the information on computers and reduced huge paperwork. This was done to improve the efficiency of the banks.

In all the examples above, companies have made significant changes to their customer groups, products, and the technology, so as to have a high growth.

Market Expansion Strategy Defined

Market expansion is a business growth strategy. Companies adopt a market expansion strategy when their growth peaks in existing channels. Success depends on confirming that they have fulfilled existing markets. Companies must then identify other markets that are easy to reach.

Companies investigating potential markets must take stock of their capabilities and assets. These may include new or existing products with an appeal in untapped areas. Through what channels will they meet these potential customers? Companies must consider who new customers are. Then they can engage them with a specific brand message.

Companies must finance their initiatives. They must also accept the risks of financial disappointment. Even the most well-developed market expansion strategies do not guarantee success. But success will lead to increased sales and a boon for the financial future of those companies.

Developing the Successful Market Expansion Strategy

We’ve outlined the makings of a successful expansion strategy. Now, we’ll share the details of realizing sales success. The following are eight stages of developing a winning market expansion strategy. Each stage will help you build a foundation for lasting sales success.

1. Summarize Your Strategy

Your gut may tell you that it’s time to expand. But creating a winning strategy takes insight. Begin by putting into writing the reasons you want to expand. Then, write down the reason you think you will succeed. Identify your new customers during the process. In every case, a new market will not be like existing ones.

Create buyer personas of people or businesses most likely to buy your products. Use demographics to determine how you can reach them. Then, choose your channels for expansion–be it online, in advertising, in stores, or in person.

Now create a formal proposal and share it with your partners. You must be able to justify your market expansion strategy before investing in it. You will need this insight to inspire buy-in from your co-founders or partners, too.

2. Finance Your Initiative

Now that you’ve justified your strategy, you can determine how you will finance the initiative. Begin by forecasting the cost of your expansion. That means itemizing all the resources you’ll need. Then you can calculate how long it will take for the venture to be profitable.

According to Inc., “It’s most important that you treat your venture objectively, remembering to treat it like a business.” Your market expansion should stand on its own two legs, financially speaking. In the end, you will regain the amount of your initial investment. You will be on your way to profitability soon after.

3. Expand into New Channels

You may have the best products for your new target market. But you won’t sell much if you haven’t identified channels for connecting to them. Channels are pathways for bringing products to market for purchase. You can call them “market entry options” in professional parlance as well.

Channels can be physical–you may choose a new retail outlet to sell your product. They can be digital–you may begin selling online in foreign countries. These channels are means to engage with customers. Choosing the right channels is critical to the success of your market expansion.

Broadening your distribution channels can lead to healthier profits. It can also reduce risk if sales through one channel fail. Consider your customer demographics and customer behaviour. Then determine which channels you can engage your customers.

4. Engage New Audiences

Your market expansion strategy should include a marketing component. This should focus on engaging your new customers. It should reflect both the channels through which you will engage with customers. It should also include the value proposition you plan to deliver to them.

For many marketers, metrics like site traffic will reflect one’s success. In your case, those metrics might not reflect real progress. Site visitors might not engage your brand or buy a product. Social shares might not be real drivers for product sales either.

Your early interactions should focus on quality and authenticity. Those early interactions will be indicative of the quality of all future interactions. This is in contrast to brands established in their markets who may already grasp what their customers value and cater to those interests.

Today, customers can easily assess the quality and authenticity of a brand. As a newcomer, you can make quality and authenticity your brand distinction. According to Forbes, “[Brands] must show people why their product is valuable. Marketing around product quality is an effective, yet underrated tactic among digital sellers.”

5. Grow Your Brand

Build upon what you learned from those initial customer engagements. You can use them to spread your brand message. Collect data on your new customers. Then, identify their core motivations and repeated actions. You can identify other potential customers in that market by looking for the same habits. You can also encourage your new customers to share your brand. They can connect with people who share their motivations and behaviours.

Despite honing in on specific characteristics, your goal is market saturation. Growing your brand depends on a compelling message with broad appeal. It should welcome new customers not yet on your radar.

Striking a balance between targeted and broad messaging will be a challenge. You may have to do this within a single message. You can use different platforms for different types of messaging as well. In either case, keep in mind that one segment of the market might see an ad meant for another segment. Your brand should be consistent even if aspects of your messages are not.

6. Increase Sales of Existing Products

At this point, you will have field tested one or more products and found out how they performed. At least one will have been an existing product which has already performed in other markets. You can use the feedback and data you’ve gained from successful markets to build messaging in new ones. Remember, that messaging should centre on the quality and authenticity of your products.

Your goal is to penetrate the market, not immediately drive up revenue. You want your messaging and your products to be accessible to new customers. Develop a strategy that benefits your target customers. This should be at minimal cost to them. Strategies include:

• Special events with customer value
• Generous sales with short lifespans
• Referral discounts or benefits
• Contests and giveaways with valuable prizes

Your goal is to offer value that customers appreciate and remember. That value must be attainable for your future customers. And you should minimize their effort in getting it.

7. Introduce New Products

You may plan to invest in new product development as part of your market expansion strategy. This opens new revenue opportunities that can drive businesses to success. If executed poorly it can end in a costly disaster following a long, tedious process.

You should be serious about new product development. Consider reading a formal guide to get started. Here are some suggestions for getting your product development strategy into focus.

Your goal is to develop your new product from concept to market introduction. First, identify a need in your target market that your product will fulfill. Once you’ve developed a concept, assign a team to the product development process. Ensure they understand target customer KPIs (key points of interest).

You can involve existing customers in your target market during the design phase. Use social media or a web portal to interact with them. They can keep you focused on customer benefits as you develop your product. And they can help you with a name for the product as well.

The most important contributor to your success is distinction. Incorporate that products’ value proposition into your market expansion strategy. Then you can build on your existing success.

8. Establish a Foundation

Now that you’ve gained a foothold in your new market, it’s time to lay the groundwork for escalation. Revisit how you found success in your original market or markets. The journey ahead will be completely different. But some of the insights you learned will apply here. Prepare to adapt and respond to a great deal more.

Organizations undertake strategic mergers with other companies to accelerate their growth, rather than growing organically. The aim of a merger is to create an organization that is stronger than the sum of its parts. The merged organization is then in a better position to achieve its strategic goals.

(i) Objectives

Organizations use strategic mergers to achieve a number of different objectives, including gaining access to technology or products, acquiring additional customers, creating or removing barriers to entry, and developing economies of scale.

(ii) Growth

Growth is a key factor in strategic merger decisions. Organizations recognize that growth will enable them to compete more effectively against larger competitors or reduce their costs by taking advantage of economies of scale. For example, when a law firm announced a merger with another firm in the same sector, it stated, “the move will significantly boost its presence in the commodities sector and add further weight to its global reputation for shipping and transport work.”

(iii) Extend

A strategic merger can give an organization access to products or services that are not in its current range. The new products may enable it to increase revenue by offering a wider range to existing customers or meeting the requirements of new customers. Acquiring existing products also reduces an organization’s product development costs and enables it to replace older or weaker products that are not profitable.

(iv) Integration

Organizations can use strategic mergers to strengthen their supply chain. By merging with a key supplier, the organization can protect its source of supply and potentially reduce its costs. This is an important move when a supplier is the only source of an essential raw material or component. This approach also creates barriers to entry for potential competitors, strengthening the organization’s position further.

(v) Strengths

Where an organization has a strong marketing operation or distribution network, it can use strategic mergers to acquire additional products to sell through its sales channels. For example, network company Cisco’s strategy is to acquire companies with products that complement its own. It can then use its sales strengths to sell add-on products to existing customers.

(vi) Opportunities

Research may indicate market trends that provide important strategic business opportunities. Organizations that recognize the opportunity but do not have the products to meet the need can use mergers to fill the gap. That will enable them to move quickly, rather than delay while they develop their own products.

Strategy for Successful Merger

In order to make a merger work, it is pertinent to have a sound strategic planning so that maximum benefit is taken out from the merger. Before signing on the dotted lines, the company doing the acquisition must evaluate the performance, market position, cash flows, future opportunities, technology, regulatory issues of the target company to fix the right price for the deal.  The management of the company doing the acquisition must have a clear and well-defined strategy for their specific business.

It is always advisable to take lessons from the past deals if the company has done in the past, learn from the experience of peers and look into industry benchmarks. This can help in formulating a sound strategy which will pay off in the long run. One must look into the working environment, employees and other cultural issues of the target company so that all misconceptions are sorted out at the initial stage and employees of both the companies know what is in store for them. As the deal has to make sense for both the target and the acquirer, it is important to identify synergy between the two companies.

Most prominently, the strategy must lay out the business drivers of the merger and factor in all the risks associated with the merger.  If any major restructuring is required after the buyout, it must be chalked out and shared with the target company. This will surely ensure that all those involved in the merger process like management of the merger companies, stakeholders, board members, investors, employees agree on the defined strategies set by the acquiring company. If the plan gets the consent of all these stakeholders, then it will be easy to go ahead with the merger and complete the integration process without much hassle.

At the time of chalking out the merger and acquisition strategies, one must consider the markets of the intended business, market share that the acquiring company is eyeing for in each market, the products and technologies would be required to achieve the target, the geographic locations where the business will operate and the skills and resources that you would require making the deal a success.

Once the basic strategy is in place, then the acquiring company must look at the finances. Financing the deal can be done from myriad sources like cash, own accruals, debt, public and private equities, minority investments, etc. One must evaluate the cost of the fund depending on the needs and the amount of returns that the deal can fetch in the medium to long-run.  Always build a preliminary valuation model by calculating the estimated cost of acquisition and estimated returns from the merger. It will help you in understanding the relative impacts of the acquisitions. Knowing the value drivers of the deal is the most critical element for the success of any M&A. The acquiring company must do all due-diligence earnestly and identify the sources of value like intellectual property, people, markets and brand from the deal.

Lastly, one must remember that employee turnover in target company is usually very high in the initial years after the merger. The acquiring company must put in place an effective retention programme for the key employees who drive growth and value for the company. As a substantial number of M&As fail, one must keep the acquisition strategy ready at the time of signing the deal and reap the benefits later on.  It is naive to think of an acquisition as a panacea. The work of integrating an acquired company can take anywhere from 6 months to couple of years, before you begin to realize any benefits. There will always be complications, hurdles and disappointments, but one must keep the focus on the end result.

Retrenchment strategy is a practice done by organizations to gain a better financial position by lowering or reducing the costs of any of its business operation.

1. General strategy

Nowadays, retrenchment is the easiest way to see through the damages and revoke policies that did not fare well.

This dire step comes to pass when a company has suffered a heavy loss at the hands of their own foolish investment.

Evidently, this is a huge blow to the company’s fund despite the murderous competition that goes on constantly.

Retrenchment in business, therefore, seems to be the immediate and most effective measure at times like this. The process on a whole focuses on rightsizing the excess involvements of the company in order to catch an instant breath.

2. Formidable diversity

Eliminate all funding that seems most unlikely to fetch a reason for sustaining them. Cancel all impending projects or transactions that are underway to prevent further monetary loss.

Nevertheless, it is crucial to foster a few areas of work regardless of what it costs the company. These few unique areas of work which have seen through the company’s success earlier on are to be given special importance.

Whereas, an excess branch of work reaping no big fortune and showing no sign of further improvement are to be done away immediately.

It is important to maintain a formidable diversity in branches of work at a company rather than giving rise to a large number to unnecessary work plans.

3. Financial security

Companies too try retrenchment in strategic management entirely to put a hold to the different losses.

Retrenchment aims at cutting down on all expensive fields. This gives way to maintaining a low budget plan to make sure there is not any financial drop.

Moreover, this gives the employers time to think over the bad investments and about the necessary steps that have to be taken in order to prevent other managerial fiascos.

Nevertheless, retrenchment mainly involves curtailing of different excess positions that are not of much use to the company’s well-being.

However, downsizing or laying of employees definitely runs the risk of losing devoted employees while eliminating redundant avenues.

4. Forming Goals

Definitely having goals that will lead to success is the primary interest of any enterprise. The first and foremost target of the retrenchment strategies is giving life to the goals.

There are times when investments take a downward turn and best business strategy goes awry and the only sensible solution to this is to be calm and brave.

Retrenchment, however, manages to ease the impact of such a blow by saving funds that were not being put to good use.

More often, companies suffer in amateur hands since many a time company managers take bad decisions and are too late to realize it. It is in such times that retrenchment comes to their tremendous help in giving them enough time to fix the problems without much harassment.

When is Retrenchment Strategies Appropriate?

As per the definition, the main aim of the retrenchment strategy is to make the organization financially stable.

Retrenchment strategies are also used to cut down operating expenses and reduce the size of the company for the betterment of the organization. This strategy can also be used to get a good stand in this competitive market.

The retrenchment strategies mainly acts on two factors, they are

• Cost cutting
• Restructuring

With the help of the 3 different types of strategies, an organization can use any of them as per their requirements to conduct a successful retrenchment strategy.

Effects of Retrenchment on Employees

1. Prospect of career correction

Despite the fact that it seems unjust to sack employees on the pretext of futile investments there is a silver lining to it.

It is likely that companies are going to keep the most hardworking employees but in no face should it mean an end of a career for those being intercepted.

First of all, a notice will be given before a retrenchment process is in order.

Secondly, every employee will be given a fair chance to prove one’s worth through the screening.

Nevertheless, it is advisable that everyone must take the notice period seriously to consider the prospect of career correction where the risk of facing a retrenchment policy will be less.

2. Work Experience

Regardless of everything, there is a brighter side to retrenchment which is the job experience certificate.

Obviously, being subjected to retrenchment does not mean the end of everything for good. Sometimes companies have to resort to drastic measures which involve taking decisions that would not normally cross their mind.

Nonetheless, the good news is you can still apply to different companies for the job of your choice. In addition to your renewed chances, you are bound to be given preference if your company is kind enough to give you a recommendation.

3. Rise in entrepreneurship

No matter how badly it ends for an employee, new opportunities are always going to present itself.

One such opportunity is the prospect of entrepreneurship. One may use whatsoever knowledge he/she had gained while working at the previous company prior to the retrenchment to start a new enterprise from scratch.

With the rise in professional individualism in terms of trade and commerce, one can easily opt for starting one’s own business-level strategy with a little investment.

In light of recent days, the boom in entrepreneurship has almost taken the shape of a trend that is taking the globe by storm.

4. Grievance

Then there is, of course, the grieving factor. Some people no matter what, are never going to come to terms with being entitled to retrenchment.

These immovable kind of people are eventually going to take to desperate measures to heckle the company in every way possible.

However, this is not entirely their fault given the fact that they have contributed a considerable amount of their time and effort over the years in the making of the company.

They are sure as anything not going to let go of what they think is rightfully theirs, in this case, the position that has been eliminated.

This is not completely unbecoming of them since they have served the company once but completely justified as they would think themselves to be equally deserving of being retained.

Effects of Retrenchment on Organizational Performance

1. Eliminating redundancy

Retrenchment has its primary use in freeing the company of commercial attachments that are not yielding as heavily as expected.

Trying to be in vogue for the consumers, companies sometimes introduce posts or offer perks that are utterly meaningless and as a matter of fact very costly. Later these risky investments give them a run for their money.

To avoid having to close down the company, employers start reducing the number of employees starting with downsizing the number of positions they had introduced which lead to disappointment.

Anyhow, eliminating redundant involvements is one possible way to impose a cost-effective relationship between the company and its employees.

2. Improves service

The performance automatically improves after the retrenchment since that is what it apparently aims to do.

On removing the redundancies the problems become much easier to handle due to the reduction in monetary losses.

Often it happens that salaries are reduced to a meagre amount in light of desperate times. So the employees rush from pillar to post to revive the company’s lost health in order to restore the pay scale.

It is ultimately the workers’ prerogative to look after the company. So the service from their end undoubtedly improves lest the next brunt of retrenchment should be on their neck.

3. Keeping everybody on their toes

It is given that a fresh retrenchment is going to keep each and every employee on their toes. It is normal for the employees to be afraid of a future reduction in the number of workers.

This keeps the employees on high alert since they are going to be afraid of being removed if they do not work properly. They cannot afford to be liberal in their ways of working when there has been a retrenchment earlier on.

So these are definitely some of the positive ways in which retrenchment can improve the performance of the organization or the company with nothing more than a word or two of motivation from the employers.

Types of Retrenchment Strategy

1. Turnaround strategy

The process of retrenchment strategies in strategic management can be broken into 3 levels of strategy or 3 divisible components.

These are the turnaround strategy, divestment strategy and last but not the least, liquidation. The first-ever elementary step taken in terms of retrenchment is the turnaround.

This looks into the problems from a lens favourable to both the company and its employees. This process primarily involves dissolving of redundant branches of the organization.

This strategy is in part to check the fiscal backdrops without harming the interest of the employees to a great degree.

2. Divestment strategy

When the business turnaround plan does not take expected turns employers have to vouch for a higher level of treatment.

This fresh level of retrenchment is called the divestment strategy. The divestment policy focuses on restructuring and rightsizing rather than just eliminating posts.

Divestment entails re-engineering of every possible nook and cranny of the work culture at the company.

However, this strategy runs the risk of eliminating posts including permanent suspension of a large number of employees.

3. Liquidation

The worst side of the retrenchment strategy is liquidation. Playing this card means collateral damage to both parties.

In no uncertain terms, it means the end of an organization or the closing down of a company. This is the last step of this whole process and only comes to play when everything else fails.

A company would never decide to deliver on this under normal and reparable circumstances. This is for when the damage has gone beyond repair and nothing can be done to restore the old face of the company.

Advantages and Disadvantages of Retrenchment Strategy

1. Cost-effective strategy

Despite many things that can be said against retrenchment, it does handle the immediate problems very effectively.

A retrenchment procedure is carried out when the company has squandered a vast amount of money into something irretrievable.

Nevertheless, retrenchment is the first aid to the damages sustained before thinking of better ways to recover from the trauma.

This is why the retrenchment strategy in business is so positively cost-effective without taking a larger toll on the organization or the company. The is one of the best retrenchment benefits.

2. Improves performance

Evidently, the employees are going to be on their best behaviour once the retrenchment has been placed. Nobody can be too safe from the clutches of retrenchment regardless of how devoted an employee is.

Any lack in performance can be used against them. The employees, therefore, are on their toes at all times lest they should be targeted for their lack of trying.

Automatically this calls upon their best performance the company must have seen in ages.

3. Loss of good employees

Despite being strict and fair, screening is not always up to the mark. In spite of all the efforts made to save the best of employees, it is impossible to see through person to person after all.

And in all the riffraff the company loses one or two of its most hardworking employees. Once the list is made there is not much the company heads can do to keep the employees they favour on the team.

Doing that will appear unjust to all those who have cleared the screening.

4. Critical response

On top of everything, the company will have to withstand the wave of hatred and criticism coming from all those who were told off so unceremoniously.

This is one sphere of public reaction that every field of work has. But honestly one cannot blame the other since it is just as imperative to impose retrenchment when necessary, as finding a better solution to pan out to your employees rather than extricate them so irreverently.

Nonetheless, it is to be noted that retrenchment is not a one-way lane and mostly thinks along the lines of RIFs and mass layoffs. Therefore placing a retrenchment is definitely going to weigh in both advantages and disadvantages for you to choose from.