UNIT 1 Business Policy Introduction to Business Policy &
Strategic Management
UNIT 1 Business Policy Introduction to Business Policy &
Strategic ManagementMeaningIt refers to those set of perspective
management measures taken with a view to ensuring the survival and
long term success of an enterprise in a competitive
environmentOrigin of Strategic ManagementThe term is derived from
the ancient Anthenian position of strategos. Strategos was a
compound of Stratos which meant army & agein to lead. Strategy
as defined in the 1st century as everything achieved by a
commander, be it characterized by foresight, advantage, enterprise,
or a resolutionContinue.The academic origins of strategic
management come from the field of economics and company
theory.Economics provided a way to begin exploring the role of
management decisions & the possibility of strategic
choices.1960s (each organization situation is different and the
best way of managing depended on the solution)Continue..1970s &
1980s , a distinct academic field as researchers began to study
companies, managers, & strategies. Two camps were evolved one
for process (formed and implemented) & other on content of
strategic mgmt(strategic choice & performance).1980s strategic
was used as a personal mission statement of CEOs, rationalized by
board & bought into the chief shareholders.
ContinueMore line managers were becoming responsible for
planning & strategies, decisions started affecting
strategy.During this period the researchers & scholars gave a
broader emphasis into change the name of the course from business
policy to strategic mgmt. In Harvard business school, where it is a
course, the first half of the course considers the formulation of
effective strategies, & second half for implementation of the
selected strategy ContinueTerms such as Strategic mgmt, corporate
strategy & corporate planning are used interchangeably.
However, a distinction can be drawn between them.eg. CRLJapanese
practices such as TQM by using best practice, competition based on
operational effectiveness (no strategic development)
DefinitionGuleck defines strategy as a unified, comprehensive
& integrated plan relating the strategic advantages of the firm
to the challenges of the environment. It is designed to ensure that
the basic objectives of the enterprise are achievedStrategic
Management is defined as that set of decisions and actions which
leads to the development of an effective strategy or strategies to
help achieve corporate objectives.
Key parts of definition of strategic mgmt. are..It helps a
company to reach its goalsIt is comprehensive, it covers all major
aspects of enterprise.In involves decisions & actionsIt is not
a single, simple action but a series of related decisions &
actionsIt should match the strength & weaknesses with the
environment opportunities & threats.Some related
conceptsStrategic Planning & Tactical Planning:Strategic
Planning is a process by which top mgmt determine organizational
objectives, strategies needed to reach these objectives and
short-range, top level actions necessary to implement the strategy
properlyTactical Planning on the other hand refers to short-range
planning that is oriented towards operations & short-term
details.
Formal & Informal planningFormal in a organized and
formalized way generally in large organization.Informal- commonly
with small enterprises, and sometimes with one man dominated not so
small enterprises, it is in casual wayEnterprise strategyIt is the
organizations plan for establishing the desired relationship with
other social institutions and stockholder group and maintaining the
overall character of the organizationPolicyA policy is a broad,
general guide to action which constrains or directs goal
attainment. They provide the boundaries within which the objectives
must be pursued. It serve to channel and guide for implementation
of strategiesStrategic Business UnitIt is an operating divisions of
a firm which serves a distinct product/market segment or a well
defined set of customers or a geographic area.There are different
factors which decides SBUs. Each product line or a group of related
product lines may form an SBU.Core CompetenceThey are the
collective learning in an organization, especially how to
coordinate diverse production schemes & integrated multiple
streams of technologies.Eg. Assets, infrastructure, privilege
access and protected market are not core competencies even though
they may lead to higher than a average profits under some
circumstances.Classes of DecisionOperating Decisions: eg.
Production, inventory, marketing policies etc.Strategic decisions:
expansion strategy, marketing strategy, finance strategy
etc.Administrative decisions: resource acquisition &
development, financing facilities and equipment, personnel, raw
materials etc.Need for StrategyProvide directionHelps in decision
makingCo-ordination among all strategic initiativesOptimal resource
allocationAct as a pre-program/guide
Need for Strategic ManagementDifferent School ThoughtsA.Formal
vs. informal processFormal maintains disciplines, stricter review
of performance, unambiguous responsibility etc.Differentiated vs.
integrated taskssplit between those who formulate the policy and
those who implementedBenefits and Relevance of Strategic
Management1.Envision an organizations future2.Articulation of the
mission & objectives3.Facilitates better delegation,
coordination, monitoring etc.4.Guide to take measures
Continue..SWOT analysisConstant monitoringTo meet
competitionMake Management dynamic, appropriate to the
environmentIt is more effective than others (who do not follow
strategy)
MisgivingsBased on fixed premisesSWOT analysisReflects in
Mission & ObjectivesOver-ambitiousOpportunities are
overlookedVery rigidResults depends on implementation
Continue8.Lack of Commitment9.Resistance to Management of
Change10.Requires expertise 11.Expensive12.May leads to failure of
Firms13.Misconception of the concepts Strategic Management
ProcessStrategy FormulationA.Determination of Mission &
ObjectivesB.SWOT analysisC.Strategic alternativesa. evaluation
& choiceb. suitabilityc. feasibilityd.
acceptabilityImplementationEvaluation & control
Unit IIStrategic IntentMeaning of the term Mission:The term
mission, objectives and goals are terms used many a time
interchangeably. However, in corporate literature they are often
used distinctively. Mission leads to objectives, objectives leads
to goals and goal leads to targets(which are set to achieve the
goals)Meaning of the term MissionA mission statement is an enduring
statement of purpose that distinguishes one business from other
similar firms. A mission statement identifies the scope of a firms
operations in product and market terms . Mission is also know as
vision, value statement & principles Mission & Vision are
often used as synonymous, mission evolves from the
visionContinue.Fred David observes, a mission statement reveals the
long term vision of an organization in terms of what it wants to be
and whom it wants to serve. It describe an organizations purpose,
customers, products or services, markets, philosophy, and basic
technologyContinueAccording to McGinnis, a mission statement:1.
should define what the organization is and what the organization
aspires to be2. should distinguish a given organization from all
other3.Should serve as a framework for evaluating both current and
prospective activities4.Should be stated in such a manner that, it
is understood throughout the organization.Elements of Mission
statement1.Clearly Articulated: easy to understand so that the
values of the organizations are clear to everybodyeg. O.P. Jindal
group, to be a globally competitive player with a burning desire to
become the no 1 in the steel industry2.Relevant: should be
appropriate to the organization in terms of its history, culture
and shared values.Continue3. Current: environmental factors and
organizational factors may necessitate modification of the
mission.4.Written in a positive(inspiring) Tone: A statement should
be capable on inspiring and encouraging commitment towards
fulfilling the mission.5. Unique: it should establish the
individuality, if not uniqueness, of the companyContinue6.
Enduring: it should continually guide and inspire & be
challenged in the pursuit of its mission, never achieving its
ultimate goal.7.Adapted to the Target Audience: the target audience
has a bearing on the length, tone & visibility of the
statement. Formulation & communication of MissionFounders
establish the mission In some cases CEO & BOD or a committee
constituted for this purposeJoint consultationIt is communicated to
the employee through purposive meetings, notice boards, company
news letters, conversations, other meetings, letters &
badges.Mission & StrategySets direction for the strategyFocuses
the organization on actionIt creates disciplined
organizationMission statements are the operational, ethical and
financial guiding lights of companies.Defines companies
business
Suggestion by DruckerWhat is our business?What will our business
be?What should our business be?VisionJohnson: vision is a clear
mental picture of a future goal created jointly by a group for the
benefit of other people, which is capable of inspiring &
motivating those whose support is necessary for its
achievementShoemaker: vision is the shared understanding of what
the firm should be & how it must change.Characteristic of
VisionPossibilityDesirabilityActionabilityArticulationEffective
Vision StatementMust be easily communicableIt must be graphicIt
must be directionalMust be focusedMust be appealing to(long term
interest of stakeholders)Must be flexibleSome leading examples of
Vision StatementsA Coke within arms reach of everyone on the
planet(Coca Cola)Become a Premier Company in the
World(Motorola)Eliminate what annoys our bankers and
Customers(Texas Commerce Bank)How Does Vision CompareVision: Paints
a picture of the future & is inspirationalMission:it Depicts
what the organization is & does not where it is headed in
futurePhilosophy: it articulates values & beliefs of an
organization without prescribing what the future will look
likeGoals & strategy: it defines specific outcomes. Importance
of VisionA basis for performanceReflects core valuesWay to
communicateA desirable challengeBeaconHelps to prepare for
futureAdvantages of VisionLong-term thinkingCreates a common
identity and a shared sense of purposeIt is inspiring &
exhilaratingA good vision is competitive, original & uniqueIt
represent integrity
Vision FailureToo specificToo vagueToo inadequateToo
unrealisticObjectives, Goals & TargetsObjectives may be defined
as those ends which the organization seeks to achieve by its
existence and operationsGoal is defined as an intermediate result
to be achieved by a certain time as part of the grand plan. A plan
can, therefore, have many goalsTargets : referred to as specific
goalsIMPORTANCE OF OBJECTIVESJustify the Organization: indicated
thepurpose & aims for the existence of an organization 2.
Provide Direction: it should be clear as it aims to direction for
achievement of the common purpose.3. Basis for MBO: clearly
formulated objectives form the basis for MBO which is a way of mgmt
for results.Continue4. Help Strategic Planning/ Management: it is a
means to achieve the objectives.5. Help Co-ordination: objectives
helps co-ordinate decisions and decision-makers by directing 6.
Provide standard for assessment & Control: without objectives,
the organization has no objectives basis for evaluating its
successContinue..7. Help Decentralization: By making clear the
organizational objectives to various elements in the
organization.Guidelines for Ideal
objectivesParticipationClarityRealismFlexibilityConsistencyRankingVerifiabilityBalance
Factors affecting objectivesExternal EnvironmentGovernment
PolicyMarket StructureCompetitorsLegal restrictionPolitical
environmentSocial responsibilitiesContinue..B. Internal
environmentEnterprises resourcesInternal PowerShareholders
ManagementEmployee Promoters Vision & valueStockholders
ExpectationEnvironmental factorsMission
Corporate Objectives
SBU objectives
Departmental Objectives
Divisional objectives
Individual Objectives
Hierarchy of ObjectivesClassification of ObjectivesEconomic
objectivesSurvivalROIGrowthInnovationMarket shareSocial
objectivesTowards consumersTowards employeeTowards societyTowards
Govt.Primary & secondary ObjectivesPrimary
objectives:Development & ExpansionReturns to Shareholders &
employeesReduction on price for consumeSecondary objectivesBonus to
workersPromote education, R&D etc.Assistance in developing the
industryShort-run & long-run objectivesShort-run objectives may
be a means to achieve long-run objectiveLong-run objectives example
R&DMeaning of GoalsA goal is considered to be an open-ended
statement of what one wants to accomplish with no quantification of
what is to be achieved and no time criteria for its
completion.Increased ProfitablityGoals &
ObjectivesGeneralQualitativeBroad organization- Wide targetLong
term resultsEg. Growth, efficiency, profitability, utilization of
resources etc.SpecificQuantitative, measurableNarrow targets set by
operating divisionImmediate, short term resultsEg. 20% growth, 10%
efficiency, 100% utilization of resources etc.Meaning of Strategic
Intent A company with an ambitious goal with its full resources and
action on achieving the goal or becoming a dominant company in the
industry, offering best customer service that no one can surpass
etc. Such strategic indent required sustained efforts for a number
of years to achieve them.Some leading examplesNikes strategic
intent during 1960s was to overtake Adidas, which they ultimately
achievedWal-Marts strategic indent was to overtake Sears as the
largest American retailer, which they achieved in 1991Hondas
strategic indent was to crush, squash & slaughter Yamaha.
Corporate Strategy FormulationFour Basic Approaches for Strategy
FormulationThe Design approachThe Learning/ Experience ApproachThe
Power ApproachThe Ideas ApproachDesign ApproachThis model was first
explored by Ansoff (1965) In this approach, strategy is formulated
by top Mgmt through careful analysisThis was one of the best way to
develop strategy, if followed, was believed almost to guarantee
corporate success Assumption behind this approach is that human
being always behave rationally, and external risk can be viewed
& interpreted in purely objective terms.The learning/Experience
approachIt is dynamic in nature, flexibleOnce the organization has
adopted particular strategy, it tends to develop from & within
that strategy.A strategy in such organization is not pre-planned,
rather it develops on the basis of a series of action.It is the
outcome of individual & collective experience & cultural
processes in & around organizationPower ApproachThis approach
perceives strategy formulation as a negotiating process,
intra-organizational politics & power.Lindbloom(1959) was an
early proponent of this approach he drew attention to the ways in
which value judgments influence the planning process.On these
observations, the power view argues that strategy-making is not a
scientific, comprehensive or rational process, but a negotiated
process, characterized by restricted analysis & bargaining
between the players involved.Ideas approachThis approach sees
strategy as emerging from innovation that comes from the variety
& diversity which exist in & around organizations.New ideas
come, not from the top, but quite likely from lower down in the
organization. More the experience more will be innovation.Summary
of Strategic ApproachDesign ApproachLearning ApproachPower
ApproachIdeas approachIt develops through a rational, analytical,
structural approach
Change comes from implementation of planned strategy
It develops based on individual & collective experience
Change is incremental with resistance to major changeIt develops
through the process of bargaining & negotiation among powerful
interest groups
Incremental change is adaptiveIt develops through innovation
arising out of variety & diversity in & around the
organization
Change is incremental but occasionally suddenConclusionForm the
above discussion it may be noted that design approach which
emphasizes analysis & control, is the orthodox approach.Other
approaches are important as they pose significant challenges in
thinking about & managing Strategy.Learning approach highlights
how strategies are develop incrementally based on experience
Continue..Power/political approach emphasizes how strategies are
the outcome of processes of bargaining & negotiation among
powerful internal & external group.Ideas approach helps an
understanding of where innovative strategies come from & how
organization cope with dynamic environment.Corporate
GovernanceDefined as the relationship among various participants in
determining the direction & performance of
corporationParticipants being : SH, Mgmt, BOD.It also encompasses
the combination of law, regulation, voluntary corporate practices
that enable the corporation to attractCapital, Perform Efficiently,
achieve corporate objectives, meet obligations.Importance of
Corporate GovernancePromote efficient use of ResourcesCompliance
with laws, regulation & expectation of societyReduce corruption
in business dealingsNeed for Corporate GovernanceAttract
investorCreate competitive & efficient enterprisesEnhance
accountabilityPromote efficient & effective use of limited
resources.4 Pillars of Good
GovernanceFairnessTransparencyAccountabilityResponsibilityCorporate
PhilosophyCorporate Philosophy (or creed) establishes the values,
belief, and guidelines for the manner in which the organization is
going to conduct its business.The most important factor in
corporate success is faithful adherence of these beliefs.It
establishes the relationship between the organization & its
stakeholders.
Corporate CultureMeaningIt is an organization comparable to
personality in a person. Humans have fairly enduring & stable
traits that help them protect their attitudes & behaviors. So
do organizations.It refers to the collective assumptions &
beliefs of an organizations employees that shape the behavior of
individuals & groups in the organization Developing Corporate/
organizational CultureOrigin of Organizational
CulturesHistoryEnvironmentStaffing ProcessSocialization
ProcessContinue..Identifying Organizational Culture:Industrial
Autonomy: independence, opportunitiesStructure: Rules &
RegulationSupport: Assistance & WarmthIdentification: employees
identification towards co.Performance Record: Salary, promotion
etc.Conflict Tolerance: degree of tolerance between peers &
work groupRisk Tolerance: encouragement to
innovation.Continue3.Changing corporate Culture: Difficult
taskClear written statement of corporate philosophyImportant to
practice, not just preachedChange the senior Management Unit
IIIInternal & Environmental AnalysisThe organization in which
organization operates consists of two
partsExternalInternalCharacteristics of Business
EnvironmentComplexDynamicUncertainTurbulent
(unpredictable)Environmental AnalysisIt is the process of
monitoring the events & evaluating trends in external
environment, to identify both present & future opportunities
& threats that may influence the firms ability to reach its
goal.It is from such an analysis that manager can make decisions on
whether to react to, ignore, or try to influence or anticipate
future opportunities & threats discoveredOpportunities &
ThreatsOpportunities: Attractive arena for companys action in which
the particular company would enjoy competitive advantageThreats:
Unfavorable situation in a firms environment that creates a risk or
cause damage to the organization.Importance of ENVIRONMENTAL
AnalysisHelps to perceive opportunities & threatsProvides
information on the nature of competitionAvenues for productive
cooperationTo assess their impact & influenceAdapt companys
direction & strategy as neededTo set appropriate
objectivesContinue..7. To analysis & evaluate strategic
alternative8. To work out networks & cooperative ventures9. To
avoid strategic surprise & to ensure long term health.
Environmental forecasting( inputs to
forecasting)EnvironmentScanningEnvironment monitoringEnvironment
intelligenceForecastContinue..Environment Scanning: involves
surveillance of a firms external environment to predict changes to
come.Environmental Monitoring: tracks the trends, sequence of
events or stream of activities.Competitive intelligence: it
provides critical information on competitors, & helps a company
to avoid surprises by anticipating competitors moves.
Features of environmental analysisHolistic exerciseContinuous
ActivityExploratory ProcessComponents of External EnvironmentMega
or Macro environmentLegal
PoliticalEconomicTechnologicalSocio-culturalDemographic
EcologicalOperating or relevant environment Suppliers Markets
intermediariesCompetitionE-commerceSkill level of
workforceFinancial institutionRegulatory provision
Industry and Competitive environmentStructure and characteristic
of the industryCompetitive forces
Michael Porter Five Forces ModelsPorter five forces analysisis a
framework for industry analysis and business strategy development.
It draws uponindustrial organization (IO) economicsto derive five
forces that determine the competitive intensity and therefore
attractiveness of amarket. Attractiveness in this context refers to
the overall industry profitability. An "unattractive" industry is
one in which the combination of these five forces acts to drive
down overall profitability. A very unattractive industry would be
one approaching "pure competition", in which available profits for
all firms are driven tonormal profit
Porters Five Forces ModelBargaining PowerOf Suppliers Threats of
new entrant
Threats of SubstituteProducts or service Potential
EntrantsBuyersIndustry Competitors Rivalry among existing
firmsSuppliersSustitutesContinueThree of Porter's five forces refer
to competition from external sources. The remainder are internal
threats.It consist of those forces close to acompanythat affect its
ability to serve its customers and make aprofit. A change in any of
the forces normally requires a business unit to re-assess
themarketplacegiven the overall change inindustry information. The
overall industry attractiveness does not imply that everyfirmin the
industry will return the same profitabilityContinuePorter's five
forces include - three forces from 'horizontal' competition: the
threat of substitute products or services, the threat of
established rivals, and the threat of new entrants; and two forces
from 'vertical' competition: thebargaining powerof suppliers and
the bargaining power of customers.
Advantages of ModelIt is a powerful tool that helps managers to
think strategically it leads managers to think systematically about
the way their strategic choices will be affected by the forces of
competition & how their choices will affect the five forces
& change conditions in the industry.Helps in improvement of
firms competitive positionsContinueHelps in taking long term
decisionsHelps in resource planning
Critical Assessment of Porters ModelIt is based on assumption of
Industrial organization perspective on strategy as opposed to the
resources based view (RBV) of the firmIt does not take into the
fact that some firms, most notably the large ones, can take step to
modify the industry structure, there by increasing the prospects
for profits.Continue..It overlooks the many potential benefits of
developing constructive win-win partnerships with suppliers &
customers.A firm that competes internationally must be concerned
with multiple industry structures. The nature of industry
competition in the international area differs among nations, &
may present challenges that are not present in a firms host
countryInternal AnalysisIt is referred to as internal appraisal,
organizational audit, internal corporate assessment etc. Research
has shown that the overall strength & weaknesses of a firms
resources & capabilities are more important for a strategy than
environmental factors.Importance of Internal AnalysisTo find where
it stands in terms of its strengths & weaknessTo exploit the
opportunities that are in line with its capabilitiesTo correct
important weaknessesTo defend against threatsTo asses capabilities
gaps & take steps to enhance its capabilitiesStrength &
Weaknesses MeaningA. Strengths: these are the resources, skills or
other advantages a firm enjoys relative to its competitors.It is
also something a company is good at doing. These are A skill or an
important attributeValuable physical assetsValuable intangible
assets etc.WeaknessesB.It is limitation or deficiency in resources,
skills & capabilities that seriously impede effective
performance.It is a constraint or an obstacle that checks movement
in certain direction, and may also inhibit organization in gaining
a distinctive advantage. A weaknesses can beInferior skills or lack
of expertiseLack of intellectual capital.Continue3. deficiencies in
physical, organizational or intangible assets.4. inferior
capabilities in key functional areas
While a companys resource strengths represent competitive
assets, its resource weaknesses represent competitive
liabilitiesInternal Organizational AnalysisFinancial
positionProduct positionMarketing capabilityR&D
capabilityOrganizational structureHuman resourcesConditions of
facilities & equipmentsPast objectives &
strategiesStrength
Brand imageHigh quality productsLatest technologyHigh
intellectual capitalCordial industrial relations Weaknesses
Weak distribution networkNarrow product linesRising costsPoor
marketing planOpportunities
New marketProfitable new acquisitionsR&D skills in new
areasNew businesses
Threats
Increase in competitionBarriers to carryChange in consumer
tastesNew or substitutes productsThreats of takeover
Critical assessment of SWOT analysisBasic technique for
analyzingAct as a raw material for analyzingAid to strategic
analysisSummarizes key issuesBasis for judging future courses of
actionUnderstand opportunities
