141588394 business policy strategic management

8/18/2019 141588394 Business Policy Strategic Management

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UNIT 1

Business Policy Introduction to BusinessPolicy & Strategic Management

Meaning

It 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 environment


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Origin of Strategic Management

• The 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 resolution’


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• 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 missionstatement of CEO’s, rationalized by board &

bought into the chief shareholders.


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• More line managers were becoming responsiblefor planning & strategies, decisions startedaffecting strategy.

• During this period the researchers & scholarsgave a broader emphasis into change the nameof the course from business policy to strategicmgmt.

• In Harvard business school, where it is a course,

the first half of the course considers theformulation of effective strategies, & second halffor implementation of the selected strategy


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• Terms such as Strategic mgmt, corporate

strategy & corporate planning are used

interchangeably. However, a distinction can be

drawn between them.eg. CRL

• Japanese practices such as TQM by using best

practice, competition based on operational

effectiveness (no strategic development)


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Definition

• Guleck defines strategy as a “unified,comprehensive & integrated plan relating thestrategic advantages of the firm to the challenges

of the environment. It is designed to ensure thatthe basic objectives of the enterprise areachieved”

• Strategic Management is defined as “that set of

decisions and actions which leads to thedevelopment of an effective strategy or strategiesto help achieve corporate objectives.”


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Key parts of definition of strategic

mgmt. are..

• It helps a company to reach its goals

• It is comprehensive, it covers all major aspects

of enterprise.

• In involves decisions & actions

• It is not a single, simple action but a series of

related decisions & actions• It should match the strength & weaknesses

with the environment opportunities & threats.


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Some related concepts

Strategic Planning & Tactical Planning:

• Strategic Planning is a process by which topmgmt determine organizational objectives,

strategies needed to reach these objectivesand short-range, top level actions necessary toimplement the strategy properly

•

Tactical Planning on the other hand refers toshort-range planning that is oriented towardsoperations & short-term details.


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Formal & Informal planning

• Formal –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 way


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Enterprise strategy

• It is the organization’s plan for establishing the

desired relationship with other social

institutions and stockholder group and

maintaining the overall character of the

organization


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Policy

• A 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

strategies


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Strategic Business Unit

• It 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.


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Core Competence

• They 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 aaverage profits under some circumstances.


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Classes of Decision

• Operating 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.


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Need for Strategy

• Provide direction

• Helps in decision making

•

Co-ordination among all strategic initiatives• Optimal resource allocation

• Act as a pre-program/guide


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Need for Strategic Management

• Different School Thoughts

A. Formal vs. informal process

• Formal maintains disciplines, stricter review of

performance, unambiguous responsibility etc.

B. Differentiated vs. integrated tasks

split between those who formulate the policy

and those who implemented


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Benefits and Relevance of Strategic

Management

1. Envision an organization’s future

2. Articulation of the mission & objectives3. Facilitates better delegation, coordination,

monitoring etc.

4. Guide to take measures


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1. SWOT analysis

2. Constant monitoring

3. To meet competition4. Make Management dynamic, appropriate to

the environment

5. It is more effective than others (who do notfollow strategy)


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Misgivings

1. Based on fixed premises

2. SWOT analysis

3. Reflects in Mission & Objectives4. Over-ambitious

5. Opportunities are overlooked

6. Very rigid7. Results depends on implementation


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• 8. Lack of Commitment

• 9. Resistance to Management of Change

•

10. Requires expertise• 11. Expensive

• 12. May leads to failure of Firms

• 13. Misconception of the concepts


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Strategic Management Process

• Strategy Formulation

• A. Determination of Mission & Objectives

• B. SWOT analysis

• C. Strategic alternatives

• a. evaluation & choice

• b. suitability

• c. feasibility

• d. acceptability

D. Implementation

E. Evaluation & control


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Unit II

Strategic Intent

• Meaning 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)


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Meaning of the term Mission

• A mission statement is an enduring statementof purpose that distinguishes one businessfrom other similar firms.

• A mission statement identifies the scope of afirms 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 vision


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• 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 organization’spurpose, customers, products or services,

markets, philosophy, and basic technology


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• According to McGinnis, a mission statement:

1. should define what the organization is andwhat the organization aspires to be

2. should distinguish a given organization fromall other

3.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.


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Elements of Mission statement

1. Clearly Articulated: easy to understand so thatthe values of the organizations are clear toeverybody

eg. O.P. Jindal group, to be a globallycompetitive player with a burning desire tobecome the no 1 in the steel industry

2. Relevant: should be appropriate to theorganization in terms of its history, culture andshared values.


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3. Current: environmental factors andorganizational factors may necessitatemodification of the mission.

4. Written in a positive(inspiring) Tone: Astatement should be capable on inspiring andencouraging commitment towards fulfillingthe mission.

5. Unique: it should establish the individuality, ifnot uniqueness, of the company


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• 6. 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.


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Formulation & communication of

Mission

• Founders establish the mission

• In some cases CEO & BOD or a committee

constituted for this purpose

• Joint consultation

It is communicated to the employee through

purposive meetings, notice boards, company

news letters, conversations, other meetings,

letters & badges.


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Mission & Strategy

• Sets direction for the strategy

• Focuses the organization on action

•

It creates disciplined organization• Mission statements are the operational,

ethical and financial guiding lights of

companies.

• Defines companies business


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Suggestion by Drucker

• What is our business?

• What will our business be?

• What should our business be?


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Vision

Johnson: 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 isnecessary for its achievement”

Shoemaker: vision is “the shared understanding

of what the firm should be & how it mustchange”.


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Characteristic of Vision

1. Possibility

2. Desirability

3. Actionability

4. Articulation


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Effective Vision Statement

• Must be easily communicable

• It must be graphic

• It must be directional

• Must be focused

• Must be appealing to(long term interest of

stakeholders)• Must be flexible


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Some leading examples of Vision

Statements

• “A Coke within arm’s 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)


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How Does Vision Compare

Vision: Paints a picture of the future & is

inspirational

Mission: it Depicts what the organization is &

does not where it is headed in future

Philosophy: it articulates values & beliefs of an

organization without prescribing

what the future will look like

Goals & strategy: it defines specific outcomes.


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Importance of Vision

• A basis for performance

• Reflects core values

• Way to communicate

• A desirable challenge

• Beacon

•Helps to prepare for future


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Advantages of Vision

• Long-term thinking

• Creates a common identity and a shared sense

of purpose

• It is inspiring & exhilarating

• A good vision is competitive, original & unique

•

It represent integrity


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Vision Failure

• Too specific

• Too vague

• Too inadequate

• Too unrealistic


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Objectives, Goals & Targets

• Objectives may be defined as “those ends

which the organization seeks to achieve by its

existence and operations”

• Goal 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

goals” • Targets : referred to as specific goals


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IMPORTANCE OF OBJECTIVES

1. Justify the Organization: indicated the

purpose & aims for the existence of anorganization

2. Provide Direction: it should be clear as itaims to direction for achievement of thecommon purpose.

3. Basis for MBO: clearly formulated objectivesform the basis for MBO which is a way ofmgmt for results.


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4. 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 noobjectives basis for evaluating its success


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7. Help Decentralization: By making clear the

organizational objectives to various elements

in the organization.


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Guidelines for Ideal objectives

a. Participation

b. Clarity

c. Realism

d. Flexibility

e. Consistency

f. Ranking

g. Verifiability

h. Balance


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Factors affecting objectives

A. External Environment

• Government Policy

• Market Structure

• Competitors

• Legal restriction

•Political environment

• Social responsibilities


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• B. Internal environment

• Enterprise’s resources

• Internal Power

• Shareholders

• Management

•

Employee


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Promoter’s Vision

& value

Stockholder’s

Expectation

Environmental

factors

Mission

Corporate Objectives

SBU objectives

Departmental Objectives

Divisional objectives

Individual Objectives

Hierarchy of Objectives


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Classification of Objectives

• Economic objectives

1. Survival

2. ROI

3. Growth

4. Innovation

5. Market share


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Social objectives

• Towards consumers

• Towards employee

• Towards society

• Towards Govt.


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Primary & secondary Objectives

• Primary objectives:

1. Development & Expansion

2. Returns to Shareholders & employees

3. Reduction on price for consume

Secondary objectives

1. Bonus to workers

2. Promote education, R&D etc.

3. Assistance in developing the industry


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Short-run & long-run objectives

• Short-run objectives may be a means to

achieve long-run objective

• Long-run objectives example R&D


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Meaning of Goals

• A 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 itscompletion.

• ‘Increased Profitablity’


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Goals & Objectives

• General

• Qualitative

• Broad organization- Wide

target• Long term results

• Eg. Growth, efficiency,

profitability, utilization of

resources etc.

• Specific

• Quantitative, measurable

• Narrow targets set by

operating division• Immediate, short term

results

• Eg. 20% growth, 10%

efficiency, 100%utilization of resources

etc.


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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 thatno one can surpass etc.

• Such strategic indent required sustained

efforts for a number of years to achieve them.


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Some leading examples

• Nike’s strategic intent during 1960’s was to

overtake Adidas, which they ultimately

achieved

• Wal-Mart’s strategic indent was to “overtake

Sears” as the largest American retailer, which

they achieved in 1991

• Honda’s strategic indent was “to crush, squash& slaughter Yamaha”.


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Corporate Strategy Formulation

• Four Basic Approaches for Strategy

Formulation

1. The Design approach

2. The Learning/ Experience Approach

3. The Power Approach

4. The Ideas Approach


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The learning/Experience approach

• It is dynamic in nature, flexible

• Once the organization has adopted particularstrategy, it tends to develop from & within that

strategy.• A strategy in such organization is not pre-

planned, rather it develops on the basis of aseries of action.

• It is the outcome of individual & collectiveexperience & cultural processes in & aroundorganization


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Power Approach

• This approach perceives strategy formulation as anegotiating 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 thatstrategy-making is not a scientific, comprehensive or

rational process, but a negotiated process,characterized by restricted analysis & bargainingbetween the players involved.


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Ideas approach

• This 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.


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Summary of Strategic Approach

Design

Approach

Learning

Approach

Power Approach Ideas approach

It develops

through a

rational,

analytical,

structuralapproach

Change comes

from

implementatio

n of plannedstrategy

It develops

based on

individual &

collective

experience

Change is

incremental

with

resistance tomajor change

It develops through

the process of

bargaining &

negotiation among

powerful interestgroups

Incremental change

is adaptive

It develops through

innovation arising out

of variety & diversity

in & around the

organization

Change is incremental

but occasionally

sudden


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Conclusion

• Form the above discussion it may be notedthat design approach which emphasizesanalysis & control, is the orthodox approach.

•Other approaches are important as they posesignificant challenges in thinking about &managing Strategy.

• Learning approach highlights how strategiesare develop incrementally based onexperience


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• 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.


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Corporate Governance

• Defined as “the relationship among variousparticipants in determining the direction &performance of corporation”

•Participants being : SH, Mgmt, BOD.

• It also encompasses the combination of law,regulation, voluntary corporate practices thatenable the corporation to attract

• Capital, Perform Efficiently, achieve corporateobjectives, meet obligations.


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Importance of Corporate Governance

• Promote efficient use of Resources

• Compliance with laws, regulation &

expectation of society

• Reduce corruption in business dealings


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Need for Corporate Governance

• Attract investor

• Create competitive & efficient enterprises

• Enhance accountability

• Promote efficient & effective use of limited

resources.


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4 Pillars of Good Governance

1. Fairness

2. Transparency

3. Accountability

4. Responsibility


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Corporate Philosophy

• Corporate 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 theorganization & its stakeholders.


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Corporate Culture

• Meaning

It is an organization comparable to personality ina person. Humans have fairly enduring &

stable traits that help them protect theirattitudes & behaviors. So do organizations.

It refers to the collective assumptions & beliefsof an organization’s employees that shape thebehavior of individuals & groups in theorganization

Developing Corporate/ organizational


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Developing Corporate/ organizational

Culture

• Origin of Organizational Cultures

a) History

b) Environment

c) Staffing Process

d) Socialization Process


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2. Identifying Organizational Culture:

a. Industrial Autonomy: independence, opportunities

b. Structure: Rules & Regulation

c. Support: Assistance & Warmth

d. Identification: employees identification towards co.

e. Performance Record: Salary, promotion etc.

f. Conflict Tolerance: degree of tolerance between peers

& work groupg. Risk Tolerance: encouragement to innovation.


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3. Changing corporate Culture:

Difficult task

Clear written statement of corporate philosophy

Important to practice, not just preached

Change the senior Management

Unit III


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Unit III

Internal & Environmental Analysis

• The organization in which organization

operates consists of two parts

1. External

2. Internal

Characteristics of Business


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Characteristics of Business

Environment

• Complex

• Dynamic

• Uncertain

• Turbulent (unpredictable)


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Environmental Analysis

• It is the process of monitoring the events &evaluating trends in external environment, toidentify both present & future opportunities &

threats that may influence the firm’s ability toreach its goal.

• It is from such an analysis that manager canmake decisions on whether to react to, ignore,

or try to influence or anticipate futureopportunities & threats discovered


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Opportunities & Threats

• Opportunities: “Attractive arena for company’s

action in which the particular company would

enjoy competitive advantage”

• Threats: Unfavorable situation in a firm’senvironment that creates a risk or cause

damage to the organization.

Importance of ENVIRONMENTAL


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Importance of ENVIRONMENTAL

Analysis

1. Helps to perceive opportunities & threats

2. Provides information on the nature of

competition

3. Avenues for productive cooperation

4. To assess their impact & influence

5. Adapt company’s direction & strategy as

needed

6. To set appropriate objectives


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7. To analysis & evaluate strategic alternative

8. To work out networks & cooperative ventures

9. To avoid strategic surprise & to ensure long

term health.

Environmental forecasting( inputs to


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Environmental forecasting( inputs to

forecasting)

Environment

Scanning

Environment

monitoring

Environment

intelligence

Forecast

C i


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• Environment Scanning: involves surveillanceof a firm’s external environment to predictchanges to come.

•

Environmental Monitoring: tracks the trends,sequence of events or stream of activities.

• Competitive intelligence: it provides criticalinformation on competitors, & helps a

company to avoid surprises by anticipatingcompetitor’s moves.

F f i l l i


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Features of environmental analysis

• Holistic exercise

• Continuous Activity

• Exploratory Process

C f E l E i


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Components of External Environment

• Mega or Macro environment1. Legal

2. Political

3. Economic

4. Technological

5. Socio-cultural

6. Demographic

7. Ecological

O i l i


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Operating or relevant environment

1. Suppliers

2. Markets intermediaries

3. Competition

4. E-commerce

5. Skill level of workforce

6. Financial institution7. Regulatory provision

I d d C i i i


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Industry and Competitive environment

• Structure and characteristic of the industry

• Competitive forces

Mi h l P t Fi F M d l


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Michael Porter Five Forces Models

Porter five forces analysis is a framework for industryanalysis and business strategy development . It drawsupon industrial organization (IO) economics to derivefive forces that determine the competitive intensityand therefore attractiveness of a market.

Attractiveness in this context refers to the overall industryprofitability. An "unattractive" industry is one in whichthe combination of these five forces acts to drive downoverall profitability. A very unattractive industry would

be one approaching "pure competition", in whichavailable profits for all firms are driven to normal profit

P t ’ Fi F M d l

http://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Industrial_organization


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Porter’s Five Forces Model

Bargaining PowerOf Suppliers

• Threats of new

entrant

Threats of SubstituteProducts or service

Potential

Entrants

Buyers

IndustryCompetitors

Rivalry among

existing firmsSuppliers

Sustitutes

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• Three of Porter's five forces refer to competitionfrom external sources. The remainder are internalthreats.

• It consist of those forces close to a company that

af fect its ability to serve its customers and makea profit. A change in any of the forces normallyrequires a business unit to re-assessthe marketplace given the overall change

in industry information. The overall industryattractiveness does not imply that every firm inthe industry will return the same profitability

C ti

http://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Company


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• Porter'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 twoforces from 'vertical' competition: the bargaining

power of suppliers and the bargaining power of

customers.

•

Ad t f M d l

http://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_power


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Advantages of Model

• It is a powerful tool that helps managers tothink strategically

• it leads managers to think systematically

about the way their strategic choices will beaffected by the forces of competition & howtheir choices will affect the five forces &change conditions in the industry.

• Helps in improvement of firm’s competitivepositions

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• Helps in taking long term decisions

• Helps in resource planning

C iti l A t f P t ’ M d l


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Critical Assessment of Porter’s Model

• It is based on assumption of Industrialorganization perspective on strategy as

opposed to the resources based view (RBV) of

the firm• It does not take into the fact that some firms,

most notably the large ones, can take step to

modify the industry structure, there byincreasing the prospects for profits.

Continue


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• It overlooks the many potential benefits ofdeveloping constructive win-win partnershipswith suppliers & customers.

•

A firm that competes internationally must beconcerned with multiple industry structures.

• The nature of industry competition in theinternational area differs among nations, &

may present challenges that are not present ina firm’s host country

Internal Analysis


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Internal Analysis

• It is referred to as “internal appraisal”,“organizational audit”, internal “corporate

assessment” etc.

• Research has shown that the overall strength& weaknesses of a firm’s resources &

capabilities are more important for a strategy

than environmental factors.

Importance of Internal Analysis


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Importance of Internal Analysis

• To find where it stands in terms of itsstrengths & weakness

• To exploit the opportunities that are in line

with its capabilities

• To correct important weaknesses

• To defend against threats

• To asses capabilities gaps & take steps to

enhance its capabilities

Strength & Weaknesses Meaning


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Strength & Weaknesses Meaning

A. Strengths: these are the resources, skills orother advantages a firm enjoys relative to its

competitors.

• It is also something a company is good atdoing. These are

1. A skill or an important attribute

2. Valuable physical assets

3. Valuable intangible assets etc.

Weaknesses


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Weaknesses

B. It is limitation or deficiency in resources, skills& capabilities that seriously impede effectiveperformance.

•

It is a constraint or an obstacle that checksmovement in certain direction, and may alsoinhibit organization in gaining a distinctiveadvantage. A weaknesses can be

1. Inferior skills or lack of expertise

2. Lack of intellectual capital.

Continue


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• 3. deficiencies in physical, organizational orintangible assets.

• 4. inferior capabilities in key functional areas

• “While a company’s resource strengths

represent competitive assets, its resource

weaknesses represent competitive liabilities”

Internal Organizational Analysis


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Internal Organizational Analysis

1. Financial position2. Product position

3. Marketing capability

4. R&D capability5. Organizational structure

6. Human resources

7. Conditions of facilities & equipments8. Past objectives & strategies

Strength Weaknesses


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Brand image

High quality products

Latest technology

High intellectual capital

Cordial industrial relations

Weak distribution network

Narrow product lines

Rising costs

Poor marketing plan

Opportunities

New market

Profitable new acquisitions

R&D skills in new areas

New businesses

Threats

Increase in competition

Barriers to carry

Change in consumer tastes

New or substitutes products

Threats of takeover

Critical assessment of SWOT analysis


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Critical assessment of SWOT analysis

i. Basic technique for analyzing

ii. Act as a raw material for analyzing

iii. Aid to strategic analysis

iv. Summarizes key issues

v. Basis for judging future courses of action

vi. Understand opportunities

141588394 business policy strategic management

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