Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can

be taken by the subordinates in an organization. It permits the lower level

management to deal with the problems and issues without consulting top

level management every time for decisions. Business policies are the

guidelines developed by an organization to govern its actions. They define

the limits within which decisions must be made. Business policy also deals

with acquisition of resources with which organizational goals can be

achieved. Business policy is the study of the roles and responsibilities of

top level management, the significant issues affecting organizational

success and the decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.

2. Clear- Policy must be unambiguous. It should avoid use of jargons

and connotations. There should be no misunderstandings in following

the policy.

3. Reliable/Uniform- Policy must be uniform enough so that it can be

efficiently followed by the subordinates.

4. Appropriate- Policy should be appropriate to the present

organizational goal.

5. Simple- A policy should be simple and easily understood by all in the

organization.

6. Inclusive/Comprehensive- In order to have a wide scope, a policy

must be comprehensive.

7. Flexible- Policy should be flexible in operation/application. This does

not imply that a policy should be altered always, but it should be wide

in scope so as to ensure that the line managers use them in

repetitive/routine scenarios.

8. Stable- Policy should be stable else it will lead to indecisiveness and

uncertainty in minds of those who look into it for guidance.

Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term

“strategy”. The difference between policy and strategy can be

summarized as follows-

1. Policy is a blueprint of the organizational activities which are

repetitive/routine in nature. While strategy is concerned with those

organizational decisions which have not been dealt/faced before in

same form.

2. Policy formulation is responsibility of top level management. While

strategy formulation is basically done by middle level management.

3. Policy deals with routine/daily activities essential for effective and

efficient running of an organization. While strategy deals with

strategic decisions.

4. Policy is concerned with both thought and actions. While strategy is

concerned mostly with action.

5. A policy is what is, or what is not done. While a strategy is the

methodology used to achieve a target as prescribed by a policy.

Business owner's policyFrom Wikipedia, the free encyclopedia

A business owner’s policy (also businessowner’s policy, business

owners policy or BOP) is a special type of commercial insurance designed

for small and medium-sized businesses.[1] By bundling general liability

insurance and property insurance into a single policy, BOPs typically offer a

reduced premium, often making them a more cost-effective option than

separately purchased policies.[2]

Specific coverage included in a business owner’s policy varies among

insurance providers, but most policies require that businesses meet

eligibility criteria to qualify.

Contents

1 Standard Coverage

2 Exclusions & Optional Coverages

3 Eligibility

4 References

Standard Coverage

A typical business owner’s policy includes property and liability insurance.

The property insurance portion of a BOP is available most often as named-

peril coverage, which provides compensation only for damage caused by

events specifically listed in the policy (typically fire, explosion, wind

damage, vandalism, smoke damage, etc.).[3] Some BOPs offer open-peril

or “all-risk” coverage; this option is available from the “special” BOP form

rather than the “standard.”[4] Types of property covered by a BOP usually

include:

Buildings: Owned or rented business premises, additions and

additions in progress, outdoor fixtures.

Personal business property: Any items owned by the business or

business owner or owned by a third party but kept temporarily in the

care, custody or control of the business or business owner. To be

covered by a BOP, business property must be stored or kept in

specified proximity of business premises (e.g., within 100 feet of the

premises).[4]

In addition, many business owner’s policies include business interruption

insurance as part of their property coverage. Business interruption

insurance provides up to 12 months’ income for covered businesses when

they are forced to shut down operations because of a covered property

event.

The liability portion of a business owner’s policy offers coverage for third

parties who suffer bodily injury, property damage, advertising injury or

personal injury on a covered business’s premises or caused by the

business’s owner or employees.[5] This coverage typically takes the form of

compensation for legal fees related to third-party lawsuits over such

incidents (including lawyers’ fees, settlements and court costs). In addition,

BOP liability coverage may include compensation for medical expenses

that result from an injury to a third party on a covered business’s premises

for up to one year after the incident occurs.[4] In addition to standard

coverages, most insurance providers offer optional additions or

endorsements on business owner’s policies that business owners can use

to tailor a policy to their specific needs.

Exclusions & Optional Coverages

Business owner’s policies do not include the following types of insurance:[5]

Liquor liability insurance for businesses that sell or manufacture

alcohol.

Professional liability insurance

Workers’ compensation

Health insurance

Disability insurance

Auto insurance

Many insurance companies offer businesses the option to customize a

BOP based on specific coverage needs. Optional property endorsements

that can be added to a BOP include coverage for certain crimes, spoilage

of merchandise, computer equipment, mechanical breakdown, forgery and

fidelity bond, but the coverage limits for these inclusions are typically low.[6]

Definition

1. “Competitive advantage means superior performance relative to

other competitors in the same industry or superior performance

relative to the industry average.”

2. “It can mean anything that an organization does better compared to

its competitors.”

Definition of 'Competitive Advantage'

An advantage that a firm has over its competitors, allowing it to

generate greater sales or margins and/or retain more customers

than its competition. There can be many types of competitive

advantages including the firm's cost structure, product offerings,

distribution network and customer support.

Investopedia explains 'Competitive Advantage'

Competitive advantages give a company an edge over its rivals

and an ability to generate greater value for the firm and its

shareholders. The more sustainable the competitive advantage,

the more difficult it is for competitors to neutralize the advantage.

There are two main types of competitive advantages:

comparative advantage and differential advantage. Comparative

advantage, or cost advantage, is a firm's ability to produce a

good or service at a lower cost than its competitors, which gives

the firm the ability sell its goods or services at a lower price than

its competition or to generate a larger margin on sales. A

differential advantage is created when a firm's products or

services differ from its competitors and are seen as better than a

competitor's products by customers.

Competitive advantage occurs when an organization acquires or

develops an attribute or combination of attributes that allows it to

outperform its competitors. These attributes can include access to natural

resources, such as high grade ores or inexpensive power, or access to

highly trained and skilled personnel human resources. New technologies

such as robotics and information technology can provide competitive

advantage, whether as a part of the product itself, as an advantage to the

making of the product, or as a competitive aid in the business process (for

example, better identification and understanding of customers).

Contents

1 Overview

2 Competitive Strategies/advantages

o 2.1 Cost Leadership Strategy

o 2.2 Differentiation Strategy

o 2.3 Innovation Strategy

o 2.4 Operational Effectiveness Strategy

3 See also

4 References

5 Further reading

6 External links

Overview

Michael Porter defined the two types of competitive advantage an

organization can achieve relative to its rivals: lower cost or differentiation.

This advantage derives from attribute(s) that allow an organization to

outperform its competition, such as superior market position, skills, or

resources. In Porter's view, strategic management should be concerned

with building and sustaining competitive advantage.[1]

Competitive advantage seeks to address some of the criticisms of

comparative advantage. Porter proposed the theory in 1985. Porter

emphasizes productivity growth as the focus of national strategies.

Competitive advantage rests on the notion that cheap labor is ubiquitous

and natural resources are not necessary for a good economy. The other

theory, comparative advantage, can lead countries to specialize in

exporting primary goods and raw materials that trap countries in low-wage

economies due to terms of trade. Competitive advantage attempts to

correct for this issue by stressing maximizing scale economies in goods

and services that garner premium prices (Stutz and Warf 2009).[2]

The term competitive advantage is the ability gained through attributes and

resources to perform at a higher level than others in the same industry or

market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by

Chacarbaghi and Lynch 1999, p. 45).[3] The study of such advantage has

attracted profound research interest due to contemporary issues regarding

superior performance levels of firms in the present competitive market

conditions. "A firm is said to have a competitive advantage when it is

implementing a value creating strategy not simultaneously being

implemented by any current or potential player" (Barney 1991 cited by

Clulow et al.2003, p. 221).[4] Successfully implemented strategies will lift a

firm to superior performance by facilitating the firm with competitive

advantage to outperform current or potential players (Passemard and

Calantone 2000, p. 18).[5] To gain competitive advantage a business

strategy of a firm manipulates the various resources over which it has direct

control and these resources have the ability to generate competitive

advantage (Reed and Fillippi 1990 cited by Rijamampianina 2003, p. 362).[6] Superior performance outcomes and superiority in production resources

reflects competitive advantage (Day and Wesley 1988 cited by Lau 2002,

p. 125).[7]

Above writings signify competitive advantage as the ability to stay ahead of

present or potential competition, thus superior performance reached

through competitive advantage will ensure market leadership. Also it

provides the understanding that resources held by a firm and the business

strategy will have a profound impact on generating competitive advantage.

Powell (2001, p. 132)[8] views business strategy as the tool that

manipulates the resources and create competitive advantage, hence,

viable business strategy may not be adequate unless it possess control

over unique resources that has the ability to create such a unique

advantage. Summarizing the view points, competitive advantage is a key

determinant of superior performance and it will ensure survival and

prominent placing in the market. Superior performance being the ultimate

desired goal of a firm, competitive advantage becomes the foundation

highlighting the significant importance to develop same.

Competitive Strategies/advantages

Cost Leadership Strategy

The goal of Cost Leadership Strategy is to offer products or services at the

lowest cost in the industry. The challenge of this strategy is to earn a

suitable profit for the company, rather than operating at a loss and draining

profitability from all market players. Companies such as Walmart succeed

with this strategy by featuring low prices on key items on which customers

are price-aware, while selling other merchandise at less aggressive

discounts. Products are to be created at the lowest cost in the industry. An

example is to use space in stores for sales and not for storing excess

product.

Differentiation Strategy

The goal of Differentiation Strategy is to provide a variety of products,

services, or features to consumers that competitors are not yet offering or

are unable to offer. This gives a direct advantage to the company which is

able to provide a unique product or service that none of its competitors is

able to offer. An example is Dell which launched mass-customizations on

computers to fit consumers' needs. This allows the company to make its

first product to be the star of its sales.

Innovation Strategy

The goal of Innovation Strategy is to leapfrog other market players by the

introduction of completely new or notably better products or services. This

strategy is typical of technology start-up companies which often intend to

"disrupt" the existing marketplace, obsoleting the current market entries

with a breakthrough product offering. It is harder for more established

companies to pursue this strategy because their product offering has

achieved market acceptance. Apple has been a notable example of using

this strategy with its introduction of iPod personal music players, and iPad

tablets. Many companies invest heavily in their research and development

department to achieve such statuses with their innovations.

Operational Effectiveness Strategy

The goal of Operational Effectiveness as a strategy is to perform internal

business activities better than competitors, making the company easier or

more pleasurable to do business with than other market choices. It

improves the characteristics of the company while lowering the time it takes

to get the products on the market with a great start.

Competitive advantage is the favorable position an organization seeks in

order to be more profitable than its competitors.

Competitive advantage involves communicating a greater perceived value

to a target market than its competitors can provide. This can be achieved

through many avenues including offering a better-quality product or service,

lowering prices and increasing marketing efforts. Sustainable competitive

advantage refers to maintaining a favorable position over the long term,

which can help boost a company's image in the marketplace, its valuation

and its future earning potential.

Related glossary terms: business integration, hackathon, IT

management, SRI International (SRI), cutting edge, UX (user experience),

96-minute rule, Silicon Valley, IT strategy (information technology strategy),

servant leadership

Strategic Management for Competitive Advantage

by Frederick W. Gluck, Stephen P. Kaufman, and A. Steven Walleck

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For the better part of a decade, strategy has been a business buzzword.

Top executives ponder strategic objectives and missions. Managers down

the line rough out product/market strategies. Functional chiefs lay out

“strategies” for everything from R&D to raw-materials sourcing and

distributor relations. Mere planning has lost its glamor; the planners have

all turned into strategists.

All this may have blurred the concept of strategy, but it has also helped to

shift the attention of managers from the technicalities of the planning

process to substantive issues affecting the long-term well-being of their

enterprises. Signs that a real change has been taking place in business’s

planning focus have been visible for some time in the performance of some

large, complex multinational corporations—General Electric, Northern

Telecom, Mitsubishi Heavy Industries, and Siemens A.G., to name four.

Instead of behaving like large unwieldy bureaucracies, they have been

nimbly leap-frogging smaller competitors with technical or market

innovations, in true entrepreneurial style. They have been executing what

appear to be well thought-out business strategies coherently, consistently,

and often with surprising speed. Repeatedly, they have been winning

market shares away from more traditionally managed competitors.

What is the source of these giant companies’ remarkable entrepreneurial

vigor? Is it the result of their substantial investments in strategic planning,

which appear to have produced something like a quantum jump in the

sophistication of their strategic planning processes? If so, what lessons can

be drawn from the steps they have taken and the experience they have

gained?

To explore these questions, we embarked on a systematic examination of

the relation between formal planning and strategic performance across a

broad spectrum of companies (see the sidebar). We looked for common

patterns in the development of planning systems over time. In particular,

we examined their evolution in those giant companies where formal

planning and strategic decision making appeared to be most closely and

effectively interwoven.

A Quest for Common Patterns

Our findings indicate that formal strategic planning does indeed evolve

along similar lines in different companies, albeit at varying rates of

progress. This progression can be segmented into four sequential phases,

each marked by clear advances over its predecessor in terms of explicit

formulation of issues and alternatives, quality of preparatory staff work,

readiness of top management to participate in and guide the strategic

decision process, and effectiveness of implementation (see the Exhibit).

The four-phase model evolution we shall be describing has already proved

useful in evaluating corporate planning systems and processes and for

indicating ways of improving their effectiveness.

In this article, we describe each of the four phases, with special emphasis

on Phase IV, the stage we have chosen to call strategic management. In

order to highlight the differences between the four stages, each will be

sketched in somewhat bold strokes. Obviously, not all the companies in our

sample fit the pattern precisely, but the generalizations are broadly

applicable to all.

What is competitive advantage?

There is no one answer about what is competitive advantage or one way to

measure it, and for the right reason. Nearly everything can be considered

as competitive edge, e.g. higher profit margin, greater return on assets,

valuable resource such as brand reputation or unique competence in

producing jet engines. Every company must have at least one advantage to

successfully compete in the market. If a company can’t identify one or just

doesn’t possess it, competitors soon outperform it and force to leave the

market.

There are many ways to achieve the advantage but only two basic types of

it: cost or differentiation advantage. A company that is able to achieve

superiority in cost or differentiation is able to offer consumers products at

lower costs or with higher degree of differentiation and most importantly, is

able to compete with its rivals.

An organization that is capable of outperforming its competitors over a long

period has sustainable competitive advantage.

The following diagram illustrates the basic competitive advantage model,

which is explained below in the article:

How a company can achieve it?

An organization can achieve an edge over its competitors in the following

two ways:

Through external changes. When PEST factors change, many

opportunities can appear that, if seized upon, could provide many

benefits for an organization. A company can also gain an upper hand

over its competitors when its capable to respond to external changes

faster than other organizations.

By developing them inside the company. A firm can achieve cost

or differentiation advantage when it develops VRIO resources, unique

competences or through innovative processes and products.

External Changes

Changes in PEST factors. PEST stands for political, economic, socio-

cultural and technological factors that affect firm’s external environment.

When these factors change many opportunities arise that can be exploited

by an organization to achieve superiority over its rivals. For example, new

superior machinery, which is manufactured and sold only in South Korea,

would result in lower production costs for Korean companies and they

would gain cost advantage against competitors in a global environment.

Changes in consumer demand, such as trend for eating more healthy food,

can be used to gain at least temporary differentiation advantage if a

company would opt to sell mainly healthy food products while competitors

wouldn’t. For example, Subway and KFC.

If opportunities appear due to changes in external environment why not all

companies are able to profit from that? It’s simple, companies have

different resources, competences and capabilities and are differently

affected by industry or macro environment changes.

Company’s ability to respond fast to changes. The advantage can also

be gained when a company is the first one to exploit the external change.

Otherwise, if a company is slow to respond to changes it may never benefit

from the arising opportunities.

Internal Environment

VRIO resources. A company that possesses VRIO (valuable, rare, hard to

imitate and organized) resources has an edge over its competitors due to

superiority of such resources. If one company has gained VRIO resource,

no other company can acquire it (at least temporarily). The following

resources have VRIO attributes:

Intellectual property (patents, copyrights, trademarks)

Brand equity

Culture

Know-how

Reputation

Unique competences. Competence is an ability to perform tasks

successfully and is a cluster of related skills, knowledge, capabilities and

processes. A company that has developed a competence in producing

miniaturized electronics would get at least temporary advantage as other

companies would find it very hard to replicate the processes, skills,

knowledge and capabilities needed for that competence.

Innovative capabilities. Most often, a company gains superiority through

innovation. Innovative products, processes or new business models

provide strong competitive edge due to the first mover advantage. For

example, Apple’s introduction of tablets or its business model combining

mp3 device and iTunes online music store.

Two basic types

M. Porter has identified 2 basic types of competitive advantage: cost and

differentiation advantage.

Cost advantage. Porter argued that a company could achieve superior

performance by producing similar quality products or services but at lower

costs. In this case, company sells products at the same price as

competitors but reaps higher profit margins because of lower production

costs. The company that tries to achieve cost advantage is pursuing cost

leadership strategy. Higher profit margins lead to further price reductions,

more investments in process innovation and ultimately greater value for

customers.

Differentiation advantage. Differentiation advantage is achieved by

offering unique products and services and charging premium price for that.

Differentiation strategy is used in this situation and company positions itself

more on branding, advertising, design, quality and new product

development rather than efficiency, outsourcing or process innovation.

Customers are willing to pay higher price only for unique features and the

best quality.

The cost leadership and differentiation strategies are not the only strategies

used to gain competitive advantage. Innovation strategy is used to develop

new or better products, processes or business models that grant

competitive edge over competitors.

References

1. Porter, Michael E. (1985). Competitive Advantage. Free Press.

ISBN 0-684-84146-0.

2. Warf, Frederick P. Stutz, Barney (2007). The world economy :

resources, location, trade and development (5th ed. ed.). Upper

Saddle River: Pearson. ISBN 0132436892.

3. Chacarbaghi; Lynch (1999), Competitive Advantage: Creating

and Sustaining Superior Performance by Michael E. Porter 1980,

p. 45

4. Clulow, Val; Gerstman, Julie; Barry, Carol (1 January 2003).

"The resource-based view and sustainable competitive advantage:

the case of a financial services firm". Journal of European Industrial

Training 27 (5): 220–232. doi:10.1108/03090590310469605.

5. Passemard; Calantone (2000), Competitive Advantage:

Creating and Sustaining Superior Performance by Michael E. Porter

1980, p. 18

6. Rijamampianina; Rasoava, Abratt, Russell, February, Yumiko

(2003). "A framework for concentric diversification through

sustainable competitive advantage". Management Decision 41 (4):

362.

7. Lau, Ronald S (1 January 2002). "Competitive factors and their

relative importance in the US electronics and computer industries".

International Journal of Operations & Production Management 22 (1):

125–135. doi:10.1108/01443570210412105.

8. Powell, Thomas C. (1 September 2001). "Competitive

advantage: logical and philosophical considerations". Strategic

Management Journal 22 (9): 875–888. doi:10.1002/smj.173.