Catanduanes State UniversityLecture Note in Management 16ABusiness Policy and Strategy

Business Policy

It is the aggregate of the policy guidelines of different functional areas viz. production, marketing, finance etc. in a company. It is the major policy guidelines drawn by the board of directors to regulate the overall direction in which company should move. It is the process of study, process of decision and process of action leading to development of effective business strategy.

Business Policy as a Discipline

The genesis of business policy The origins of business policy can be traced back to 1911 when the Harvard Business School introduced an integrative course in management aimed at providing general management capability. This course was based on case studies which had been in use at the school for instruction purposes since 1908. However, the real impetus for introducing business policy in the curriculum of business schools came with the publication of two reports in 1959. The Gordon and Howell Report sponsored by Ford Foundation had recommended a capstone course of business policy which would give participants an opportunity to pull together what they have learned in the separate business fields and utilize this knowledge in the analysis of complex business problems. In todays situation business policy is considered as a integrative course offered to those who have already been through a set of core functional area courses. The term Business Policy has been used traditionally though new titles such as Strategic Management, Corporate Strategy and policy and so on are now used extensively for the course. The discussion has so far been related to the academic status of the business policy course. In practice however, the development has been along different lines.

EVOLUTION BASED ON MANAGERIAL PRACTICES - Guleck has viewed the development in business policy as arising from the use of planning techniques by managers. Starting from day-to-day planning in earlier times managers till recently tried to anticipate the future through the preparation of budgets and by using control systems like capital budgeting and management by objectives.

However as these techniques were unable to emphasis the role of the future adequately, long range planning came into use. But soon, long range planning was replaced by strategic planning and later by strategic management A term that is currently being used to describe the process of strategic decision making. Strategic Management forms the theoretical framework for business policy courses today.

HISTORICAL PERSPECTIVE OF BUSINESS POLICY

Hofer has viewed the evolution of business policy in terms of four paradigm. For the sake of convenience, these shifts may be considered as four overlapping phases in the development of the subject of Business Policy. It is interesting to note that the development of business policy as a field of study has closely followed the demands of real life business. Ad hoc Policy According to Hofer and others the first phase which can be traced back to the mid 1930s rested on the paradigm of Ad Hoc Policy making. The need for policy making arose due to the nature of the American business firms of that period. The firms which has originally commenced operations in a single product line catering to a unique set of customers in a limited geographical area expanded in one or all of these three dimensions. Informal control and co-ordination became partially irrelevant as expansion took place and the need to integrate functional areas arose. This integration was brought about by framing policies to guide managerial action. Policy making became the prime responsibility of erstwhile entrepreneurs who later assumed the role of senior management.

Planned Policy formulation

Due to the increasing environmental changes in the 1930s and 40s in the U.S. planned policy formulation replaced Ad Hoc policy making. Based on this second paradigm the emphasis shifted to the integration of functional areas in a rapidly changing environment.

Strategy Paradigm

Increasing complexity and accelerating changes in the environment made the planned policy paradigm irrelevant since the needs of a business could no longer be served by policy making and functional area integration only. By the 1960s there was a demand for a critical look at the basic concept of business and its relationship to the environment. The concept of strategy satisfied this requirement and the third phase based on a strategy paradigm emerged in the early sixties.

Strategic Management

The current thinking which emerged in the eighties is based on the fourth paradigm of strategic management. The initial focus of strategic management was on the intersection of two board fields enquiry : The strategic processes of business firms and the responsibilities of general management. Thompson and Strickland say The approaches and methods of analysis of strategic management have not yet coalesced into theory of how to manage an enterprise. But they very definitely do represent a powerful way of thinking to resolve strategic issues. The resolution of strategic issues that affect the future of a business firm has been a continual endeavor in the subject of business policy. The endeavor is based on the development of strategic thinking. As Whitefield says Really useful training (in strategic management should yield) A comprehension of a few general principles with a through grounding in the way they apply to a variety of concrete details. Most likely, the students will forget the details and principles but remember (usually unconsciously) new, non obvious ways of thinking strategically. The general principles underlying strategic thinking have been the focus of the efforts of researchers and academicians in the field of Business Policy.

Business Policy

As defined by Christensen and others, Business Policy is The study of the function and responsibilities of Senior Management, the crucial problems that affect success in the total enterprise and the decisions that determine the direction of the organization and shape its future. The problems of policy in business like those of policy in public affairs have to do with The choice of purposes. The molding of organizational identity and character. The continuous definition of what needs to be done And the mobilization of resources for the attainment of goals in the face of competition or adverse circumstances.

This comprehensive definition covers many aspects of Business Policy Firstly it is considered as the study of the functions and responsibilities of the senior management related to those organizational problems which affects the success of the total enterprise. Secondly, it deals with the determination of the future course of action that an organization has to adopt. Thirdly, it involves a choosing the purpose and defining what needs to be done in order to mould the character and identify of an organization. Lastly, it is also concerned with the mobilization of resources, which will help the organization to achieve its goals.

THE IMPORTANCE OF BUSINESS POLICY

Business Policy is important as a course in the Management curriculum and as a component of executive development programs for middle-level managers who are preparing to move up to the senior management level. A study of Business Policy fulfills the needs of management students as well as those middle-level managers. We shall consider four areas where this course proves to be beneficial For learning the course. For understanding the business environment. For understanding the organization. For personal development. The purpose of Business Policy is three fold To integrate the knowledge gained in various functional areas of management. To adopt a generalist approach to problem solving. To understand the complex inter-linkages operating within an organization through the use of a systems approach to decision-making and relating these to the changes taking place in the external environment.

STRATEGY FORMULATION

Includes developing a vision and mission, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue

Deciding what new businesses to enter, What businesses to abandon, How to allocate resources, Whether to expand operations or diversify, Whether to enter international markets, Whether to merge or form a joint venture, How to avoid a hostile takeover.

STRATEGIC MANAGEMENT

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals Responsibility = top managers & chief executive Prime Task of Strategic Management

Peter Drucker: -- Think through the overall mission of a business. Ask the key question: What is our Business?

STAGES OF STRATEGIC MANAGEMENT

STRATEGY IMPLEMENTATION

Requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed.

Often called the action stage

Strategy evaluation reviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions

Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional

Strategic management helps a firm function as a competitive team

INTEGRATING INTUITION AND ANALYSIS

Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent

INTEGRATING OBJECTIVES, STRATEGIES, AND POLICIES

The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.

Intuition is based on:

Past experiences Judgment Feelings

Intuition is useful for decision making in:

Conditions of great uncertainty Conditions with little precedent

Strategic Management Process

Defining the organizations purpose, mission, and objectives

A Mission Statement defines the organization's purpose and primary objectives. Its prime function is to define the key measure or measures of the organizations success.

Mission Statement Creation

1) First, identify your organizations winning idea- what makes your organization stand out from its competitors & is the reason that customers will choose your organization over others.2) Second, identify the key measures of your success. (What is it that your organization has that others dont?). 3) Create a measurable goal by combining steps 1 & 2.

REMEMBER: A Mission Statement should be concise and precise which expresses your ideas, measures and desired result.

Example:

Winning Idea Farm Freshness Two Key Measures of Success Freshness & Customer Satisfaction

The mission statement of Farm Fresh Produce is:

To become the number one produce store in Main Street by selling the highest quality, freshest farm produce, from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction.

Vision Statement

Vision Statements also define the organizations purpose, but this time they do so in terms of the organizations values rather than bottom line measures (values are guiding beliefs about how things should be done.) The vision statement communicates both the purpose and values of the organization.Vision Statement Creation

First identify your organizations mission. Then uncover the real, human value in that mission. Next, identify what you, your customers and other stakeholders will value most about how your organization will achieve this mission. Combine your mission and values, and polish the words until you have a vision statement inspiring enough to energize and motivate people inside and outside your organization.

Example:

Earlier example of produce:

4 most important things owner identifies are: freshness healthiness tastiness local-ness of the produce.

We help the families of Main Town live happier and healthier lives by providing the freshest, tastiest and most nutritious local produce: From local farms to your table in under 24 hours.

Statement of Purpose

Your purpose behind your organization.

Example:

We will provide full scholarships for financially meritable students who demonstrate a willingness in pursuing higher education and who maintain a minimum grade point average of 2.0 along with a personal letter of interest. We are committed in giving students a positive outlook for their future so they may have the same opportunities and experiences as their peers. In addition, to enhance the changes of receiving this scholarship, a portfolio containing honors or any exceptional work completed over the years would be a great addition to the interview.

Selecting a Strategy

Domain of Strategy

strategic competitiveness and above normal returns concerns managerial decisions and actions which materially affect the success and survival of business enterprises involves the judgment necessary to strategically position a business and its resources so as to maximize long-term profits in the face of irreducible uncertainty and aggressive competition strategy is the linkage between a business and its current and future environment

Definition of Strategy

The determination of the long run goals and objectives of an enterprise, the adoption of courses of action and the allocation of resources necessary for carrying out these goalsAlfred Chandler, Strategy and Structure

Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes.

includes decisions about diversification, vertical integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units

Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals.

Functional strategy... the detailed deployment of resources at the operational level

Common Elements in Successful Strategy

Successful StrategyProfound understanding of the competitive environmentObjective appraisal of resourcesLong-term, simple and agreed uponobjectives$EFFECTIVE IMPLEMENTATION215Strategic Management ProcessImplement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systemsSWOTFormulate Strategy Corporate, Business, FunctionalDefine new Mission Goals, Grand StrategyIdentify Strategic Factors Strengths, WeaknessesIdentify Strategic Factors Opportunities, ThreatsScan Internal Environment Core Competence, Synergy, Value CreationEvaluate Current Mission, Goals, StrategiesScan External Environment National, GlobalCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Levels of StrategyDivision AR & D Personnel Finance Production Marketing/SalesDivision BR & D Personnel Finance Production Marketing/SalesFUNCTIONALSTRATEGIESBUSINESSSTRATEGYCORPORATESTRATEGYCORPORATEHEAD OFFICE2020