Need for Corporate Governance:

1. Wealth Maximization:

The gamut of financial turf gyrates around the vital facets of Financial, Investment, and Dividend decisions, reciprocating to the intrusive queries of

Where to invest funds and in what amounts? What are the optimal and feasible sources of funds to finance the firm’s projects/ proposals and in what proportions? And how much to payout and what percentage of amount to be retained from profits?

Pragmatically speaking, the objective of profit maximization does not clinch the ever-changing and volatile market drifts in its ambit whereas the wealth maximization does. The focal point of ‘Profit Maximization’ grooves for the elevation of net returns. The maximization of profits alone doesn’t in-turn will lead to the rise in the value of the shares. There will be many factors putting impact on the market price of the company’s shares. The factors said above can be grouped under systematic/unavoidable and unsystematic/avoidable risk facets. The segregation obviates the only possibility of control, which could be executed is on the tilting facets of unsystematic risk. The encrusted gamut of the profit concept itself doesn’t even elevate the pragmatic feasibility of it to reciprocate to the tribulations of unsystematic risk. And, the facets of systematic risk by its very nature are uncontrollable or unavoidable. But the concept of wealth maximization speaks of maximizing the value or market price of shares. It takes into consideration all the facets of risk, cuddling both systematic and unsystematic risk. And the craggy business turf drifted by the wealth maximization is/will only be the best measurer of the corporate advancement and the strongest driving force, which neutralizes the intricate and fickle dynamics, pressurizing the value/wealth maximization process.

2. Globalization and Liberalization:

At the wedge of Globalization and Liberalization, the corporate turf is unbolted to numerous vicarious-perils. The universal marketplace is getting fused into a dreadful and unique business turf. In practice, the market-product expansion strategies, including market penetration, market expansion, product expansion, and diversification strategies executed by the concerns are jeopardized to various competitive advantages garnered by other players in the market. The liberalized market will certainly signal the entry opportunities to the global giants, which in turn will multiply the vying facets creating the disharmonized turf for market participants and harmonized environment for customers or end-users offering them the more valuable and almost customized augmented-product.

3. Just In Time:

Pioneered by TAILCHI OHNO of Toyota Motor Corporation, Japan in 1950s and 1960s, Just-In Time production systems (JIT in short) has evolved into a manufacturing philosophy, which is one of the foundation stones of Japanese management systems along with the concept of TQC. ZIPS (ZERO INVENTORY PRODUCTION SYSTEMS), NOT (NICK OF TIME) and MAN (MATERIAL AS NEEDED) are variations of the same basic concept of JIT.

In the broader sense, the concept of JIT is all about “produce and deliver finished goods just in time to be sold, sub-assemblies just in time to be assembled into finished goods, fabricated parts just in time to go into sub-assemblies and purchased material just in time to be transformed into fabricated parts.”

The concept was coined from the necessity to develop a system for manufacturing a small number of automobiles with the distinguished features. The system calls out for the direct unloading of the components & parts in the production unit, eliminating the necessity for warehouse in the production premises.

The Toyota Production System has drawn greater attention in Japan and abroad. This approach classified the waste incurred in the production process into:

Excess Production. Waiting time spent at the machine Waste in transportation Waste in process Waste in motion Waste in the form of defective units.

The concept of ‘Just-in-Time’ bases its stature to the noticeable extent on the scientific management principle of ‘Motion Study’, coined by F.W. Taylor. Pragmatic feasibility of the concept calls out for the well-harmonized relationships between the company and its stakeholders. The harmonized relations can only be built through a well groomed and nurtured lations can only be build ut for the ple of Motion Study, laid down by F.W. Taylor

4. Best Practices and Bench Marking

The companies, which identify and deliver to the customers the product and service expectations to a level of satisfaction that, will ensure them a position of ‘first-choice provider/marketer of the product/service’, and at the same time, optimizes the production process leading to the higher profitability, thereby maximizing the shareholders returns, are termed as effective companies. Two viable concepts, which are worth noticeable in the above companies, are Best Practices and Bench-marking. Best Practice is widely considered to be about doing things in the most effective manner, usually focusing upon a specific activity or operation (a critical success factor), such as strategic decision making, customer relationship management, enterprise resources planning and so on. Bench-Marking helps understand the business, its process and performance, and identifies gaps between best practice and the current operating environment.

The strategic gap between the Best Practicing companies and others can better be heaved and obviated from reoccurrence through an establishment of fortified governance turf. The Best Practiced governance principles and practices will fortify the stature of the company making it stubborn enough to face jeopardizes and in-turn make it the Best Practicing Company with Bench-Marked policies and practices.

5. Management of Systematic risk

The portion of risk or variability in an expected outcome that is caused by factors, which affect the returns on all securities, is termed as Systematic Risk. Major political, economic and social phenomena, for instance, would affect all stocks, which imply that systematic risk cannot be eliminated by diversification.

A properly governed company will stand tranquil, against all the probable risk factors making its position affirm by ruling out all the imminent gaffes. The market share of a well governed company will persistently build on, notwithstanding the tuff vying in the relevant industry.

6. Effective Supply chain Management

The vigorous, capricious and absurdly murky business defies, implore for an apprehensive and instigative strategic actions. The universal marketplace is getting fused into a dreadful and unique business turf. The unified business mesh as engraved enormous intrusions for abreast and abrupt firms, clinching political, economical, financial, strategic, and social synergies to erupt. The growing arms of exploring giants have literally raised the echelon of vying at every stratum of Supply-Chain, cuddling in-bound logistics, production, out-bound logistics, marketing and sales, and service additions.

7. Competitive Advantage

When a firm sustains profit that exceeds the average for its industry, the firm is said to possess a competitive advantage over its rivals. Every firm intends to attain a sustainable competitive advantage-turf, which facilitates it to galvanize from every sprouting opportunity and be abreast with the volatile trends in the capricious business world.

Michael Porter identified two basic types of competitive advantage:

Cost Advantage Differentiation Advantage

Porter’s Generic Strategies

TARGET SCOPE

BROAD INDUSTRY WIDE

LOW COST ADVANTAGES

PRODUCT UNIQUENESS

ADVANTAGE