Chapter-1

Introduction to Business Policy and Strategy

Concept of Strategy Thinking Strategically:

The Big Strategic QuestionsWhere are we now?

2. Where do we want to go?

Business(es) to be in and market positions to stake out

Buyer needs and groups to serve

Outcomes to achieve

3. How will we get there?

A company’s answer to “how will we get there?” is its strategy

Consists of the combination of competitive moves and business approaches used by managers to run the company

Management’s “game plan” to Attract and please customers

Stake out a market position

Compete successfully

Grow the business

Achieve targeted objectives

A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the envt.

It is designed to ensure that the basic objective of the enterprise are achieved through proper execution by the org.

A strategy begins with a concept of how to use the resources of the firm most effectively in a changing envt.

Strategy as a game plan It is similar to the concept in sports of a

game plan. Before a team goes onto the field,

effective coaches examine a competitor’s past plans and strengths and weaknesses.

Then they look at their own team’s strengths and weaknesses.

The objective is to win the game with minimum of injuries.

The Hows ThatDefine a Firm's Strategy

How to please customers

How to respond to changing market conditions

How to out compete rivals

How to grow the business

How to manage each functional piece of the business and develop needed organizational capabilities

How to achieve strategic and financial objectives

Striving forCompetitive Advantage

To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at either Providing a distinctive product or service or Developing competitive capabilities rivals can

not match Achieving a sustainable competitive

advantage greatly enhances a company’s prospects for Winning in the marketplace and Realizing above-average profits

What separates a powerful strategy from an ordinary strategy

is management’s ability to forge a series of moves,

both in the marketplace and internally, that

produces sustainable competitive advantage!

“Strategy is a course of action through which an organization relates itself with the environment so as to achieve the objectives.”

1. Scope

2. Mission and objectives

3. Identification of substantial competitive advantages

4. Organization

5. Resource development

Strategic Approaches to Building Competitive Advantage Strive to be the industry’s low-cost

provider

Out compete rivals on a key differentiating feature

Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers

Develop expertise, resource strengths, and capabilities not easily imitated by rivals

A Company’s Strategy Is Partly Proactive and Partly Reactive

Chapter-2

Conceptual Foundation in Strategic management

It is a stream of decisions and actions which leads to the development of an effective strategy or strategies to help in achieving corporate objectives.

It is defined as the set of decisions and actions in formulation and implementation of designed strategy to achieve the goal of the organization – Pearce and Robbinson

It is primarily concerned with relating the organization to its environment, formulating strategies to adapt to that environment, and assuring that implementation of strategies takes place - Steiner

Definition “Strategic Management”

Benefits of Strategic Management

1. Financial Benefits

2. Offsetting uncertainty (in changing environment)

3. Clarity in direction & Objectives

4. Improve Efficiency and effectiveness of the Organization

5. Personnel satisfaction

6. Better delegation, co-ordination, monitoring , performance evaluation and control

7. Searching and improving upon competitive advantage

Limitation of Strategic Management

1. Complex and dynamic Environment

2. Rigidity of Strategist

3. Inadequate focus and appreciation to Strategic Management

4. Implementation limitation (Resources, Improper timing)

5. Vague and general objective, Lack of communication of objective

Strategic Management ProcessStrategist

Mission & Objectives

The General Environment

Industry & International Environment

Internal Environment

Generic Strategy alternatives

Strategy Choice

Resources and Structure

Policies, Plans and Administration

Evaluation and Control

Analysis

ChoiceStrategic Variation

Implementation

Vision

Vision reflects a desired future “Where we are going?” It gives idea about Border sense of

the business

Mission Mission Shows existence of the business “Who we are?” and “What we Do?” It is a narrow sense of the business

Objectives Objective deals with reasons of existence “Why We are in Business?” It is further narrow the business sense

Chapter- 5

Strategy Alternatives

Strategic Management ProcessStrategist

Mission & Objectives

The General Environment

Industry & International Environment

Internal Environment

Generic Strategy alternatives

Strategy Choice

Resources and Structure

Policies, Plans and Administration

Evaluation and Control

Analysis

ChoiceStrategic Variation

Implementation

You have reexamined ideal goals in light of the expected outcomes of pursuing the existing strategy.

As a result, u should be in a position to consider the underlying potential for a gap between expected and ideal performance outcomes.

From the diagram, u have completed the analysis and diagnosis phase of the SMP and are ready to begin the choice phase.

This phase consist of 2 activities: 1. the generation of a reasonable

no.of strategic alternatives that will help to fill the gaps matching the ETOP and SAP.

2. The choice of a strategy to reduce the gaps.

We have to see how the strategic decision makers generate alternatives strategies to fill the gaps found when the results of the 2 profiles and the firm’s goals are compared.

Relative to the gap analysis, we start with the current strategy.

If the gap is small (on the basis of the analyses of goals, external factors, internal factors), then we assume that the current strategy is adequate and little or no change is required.

If the gap increases (threats, opportunities, strengths, weaknesses or goal changes weaknesses create gap) then strategy alternatives to close the gap need to be considered.

By comparing the ETOP and SAP, u will acquire clues about the nature of strategic alternatives to close any gaps.

The alternatives for change are being generated with the perspective of improving performance by taking action to close performance gaps expected in the future.

Who are the generator of strategic alternatives: In a corporation the primary

generator of strategic alternatives is the top manager, and in the multiple-SBU firm, the primary generators are the SBU top managers and the corporate top manager.

Lower level managers are also involved to the extent that they prepare proposals for consideration by top managers.

For instance, an R&D unit may propose that additional resources be allocated for the development of a new product.

Functional level managers are also involved to the extent that plans to implement strategies are considered as part of the strategy formulation process, and strengths and weaknesses coming from functional levels are evaluated by these managers as inputs to the total process.

Generic strategy Alternatives1. Stability Strategy2. Expansion Strategy3. Retrenchment Strategy4. Combination Strategy

Stability Strategy: A Stability Strategy is a strategy that

a firm pursue when: 1. It continues to serve the public in

the same product or service, market, and function sectors as defined in its business definition, or in very similar sectors.

2. Its main strategic decisions focus on increment improvement of functional performance.

Stability strategy are implemented by “steady as it goes” approaches to decisions.

Few major functional changes are made in the product or service line, markets, or functions.

In an effective stability strategy, a company will concentrate its resources where it presently has or can rapidly develop meaningful competitive advantage in the narrowest possible product-market function scope consistent with its resources and market requirement.

A stability strategy may lead to defensive moves such as taking legal action or obtaining a patent to reduce competition.

Stability usually involves keeping track of new developments to make sure the strategy continues to make sense.

Note that Stability approach is not a “do nothing” approach; nor does it mean that goals such as profit growth are abandoned.

The stability strategy can be designed to increase profits through such approaches as improving efficiency in current operations.

This strategy is typical for firms in a mature stage of development, or mature product-market evolution.

Why Do Companies Pursue a Stability Strategy?

A no. of explanations can be offered to support stability:

1. The firm is doing well or perceives itself as successful. Mgmt does not always know what combination of decisions is responsible for this.

So, “we continue the way we always have around here.”

2. A Stability Strategy is less risky.3. It is easier and more comfortable for

all concerned to pursue a stability strategy.

4. Too much expansion can lead to inefficiencies.

5. The envt is perceived to be relatively stable, with few threats to cause problems or few opportunities the firm wishes to take advantage of it.

Expansion Strategy: An expansion strategy is a strategy

that a firm pursue when:1. It serves the public in additional

product or service sectors or adds markets or functions to its definition.

2. It focuses its strategic decisions on major increases in the pace of activity within its present business definition.

A firm implements this strategy by redefining the business- either adding to the scope of activity or substantially the efforts of the current business.

Expansion is usually thought of as “the way” to improve performance.

Why Do Companies Pursue Expansion Strategies?

1. Many executives equate expansion with effectiveness.

2. Some believe that society benefits from expansion.

3. Managerial motivation4. External pressure from stakeholders

or securities analysts.

Retrenchment Strategies: A Retrenchment Strategy is pursued

by a firm when:1. It sees the desirability of or necessity

for reducing its product or services lines, markets or functions.

2. It focuses its strategic decisions on functional improvement through the reduction of activities in units with negative cash flows.

A firm could also reduce its functions. E.g.,a firm may choose to sell most or

all of its output to a single customer. Retrenchment is frequently used

during the decline stage of a business when it is considered possible to restore profitability.

Why Do Companies Pursue Retrenchment Strategy? This strategy is hardest to pursue.. it goes

against the brains of most strategist. And it implies failure. A few reasons are as follows:1. The firm is not doing well or perceives

itself as doing poorly.2. The firm has not met with its objectives by

following one of the other generic strategies, and there is a pressure from stakeholders, customers, or others to improve performance.

3. The envt is seen to be so threatening that internal strengths are insufficient to meet the problems.

4. Better opportunities in the envt are perceived elsewhere, where a firm’s strengths can be utilized.

Any strategy, if chosen at the right time and implemented properly, will be effective.

The retrenchment strategy is the best strategy for the firm which has tried everything, has made some mistakes, and is now ready to do something about its problems.

The more serious the problems the more serious the retrenchment strategy needs to be.

It is the hardest strategy for the business to follow.

It implies that someone or something has failed, and no one wants to be labeled a failure.

But retrenchment can be used to reverse the negative trends and set the stage for more positive strategic alternatives.

Combination Strategy A combination strategy is a strategy

that a firm pursues when:1. Its main strategic decisions focus on

the conscious use of several grand strategies (S,E,R) at the same time (simultaneously) in several SBUs of the company.

2. It plans to use several grand strategies at different future times (sequentially).

With combination strategies, the decision makers consciously apply several grand strategies to different parts of the firm or to different future periods.

The logical possibilities for a simultaneous approach are stability in some areas, expansion in others; stability in some areas, retrenchment in others; retrenchment in some areas, expansion in others; and all 3 strategies in different areas of the company.

Why Do Companies pursue a Combination Strategy?

A combination strategy is not an easy strategy to use.

It is much easier to to keep a firm in one set of values or one strategy at a time.

But when a company faces many envt and these envt are changing at different rates, and the company’s products are in different stages of the life cycle, it is easy to visualize conditions under which a combination strategy makes sense.

CHAPTER- 10

STRATEGY, ETHICS AND SOCIAL RESPONSIBILITY

Linkage of Strategy to Ethics and Social Responsibility

Should there be a link between a company’s efforts to craft and execute a winning strategy and its duties to

Conduct activities in an ethical manner?

Demonstrate socially responsible behavior by

Being a committed corporate citizen and

Attending to needs of non-owner stakeholders?

What Are Ethical Principles? Involves concepts of

Right and wrong behaviors Fair and unfair actions Moral and immoral behaviors

Examples of ethical behaviors Honesty Integrity Keeping one’s word Respecting rights of others Practicing the Golden Rule

Beliefs about what is ethical serve as a moral compass to guide behaviors of individuals and companies

Concept of Business Ethics Business ethics involves applying general

ethical principles and standards to business behavior

Ethical principles in business are not different from ethical principles in general

Business actions are judged by

General ethical standards of society

Not by more permissive standards

Heavy Pressures on Company Managers to Meet or Beat Earnings Targets

Managers often feel enormous pressure to do whatever it takesto deliver good financial performance

Actions often taken by managers Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers Stretch the rules further and further, until

limits of ethical conduct are overlooked Executives feel pressure to hit performance targets since

their compensation depends heavily on company performance

Fundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line

WHERE DO ETHICAL STANDARDS COMR FROM- ARE THEY UNIVERSAL OR DEPENDENT

ON LOCAL NORMS AND SITUATIONAL CIRCUMSTANCES

According to the school of Ethical Universalism, some concepts of what is right and what is wrong are universal; that is, they transcend all cultures, societies, and religions.

For instances, being truthful (or lying, or not being honest) is considered right by the peoples of all nations

Demonstrating integrity of character, not cheating and treating people with dignity and respect are concepts that resonate with people of most cultures and religions.

“To the extent that there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries; there exists a set of universal ethics”

According to the School of Ethical Universalism, the same standards of what’s ethical and what’s unethical resonate with peoples of most societies regardless of local traditions and cultural norms;

Hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances.

The School of Ethical Relativism Apart from certain universal

basics – Honesty Trustworthiness Fairness Avoiding unnecessary harm Respecting the environment – variations exist in what societies

generally agree to beright and wrong in the conduct of business activities

According to the school of ethical relativism different societal cultures and customs have divergent values and standards of right and wrong-

Thus what is ethical and unethical must be judged in the light customs and social mores and can vary from one culture or nation to another.

Consider the following examples:

1. The use of underage labor:

in industrialized nations, the use of underage workers is considered taboo;

so company should not employ children under the age of 18 as full-time workers nor source any products from foreign suppliers that employ underage workers.

However, in India, Bangladesh, Sri Lanka, Ghana, Turkey and 100 plus other countries, it is customary to view children as potential, even necessary, workers.

Many poverty-stricken families cannot subsist without the income earned by young family members, and sending their children to school instead of having them participate in the workforce is not a realistic option.

Payment ofBribes and Kickbacks A thorny ethical problems is faced by multinational

companies

Degree of cross-country variability in payingbribes as part of business transactions

Companies forbidding payment of bribesin their codes of ethics face a formidablechallenge in countries where paymentsare entrenched as a local custom

Foreign Corrupt Practices Act prohibits U.S.companies from paying bribes in all countrieswhere they do business

Ethics and integrative Social Contracts Theory

Social contract theory provides a middle position between the opposing views of universalism (that the same set of ethical standards should apply everywhere)

and relativism (that ethical standards vary according to local custom)

According to integrative Social contracts theory, the ethical standards a company should try to uphold are governed both by

1. a limited number of universal ethical principles that are widely recognised as putting legitimate ethical boundaries on actions and behaviour in all situations and

2. the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behaviour and what does not.

However, universal ethical norms take precedence over local ethical norms.

In other words, universal ethical principles apply in those situations where most all societies- endowed with rationality and moral knowledge-

According to integrated social contracts theory, universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a “social contract”

That all individuals in all situations have a duty to observe.

Within the boundaries of this social contract, local cultures or groups, can specify other impermissible actions; however, universal ethical norms always take precedence over local ethical norms

Three Categories of Management Morality

Amoral manager

Immoral manager

Managerial ethical and

moral principles

Moral manager

Characteristics ofa Moral Manager Dedicated to high standards of ethical behavior in

Own actions

How the company’s business is to be conducted

Considers it important to Be a steward of ethical behavior

Demonstrate ethical leadership

Pursues business success Within confines of both letter and spirit of laws

With a habit of operating well above what laws require

Characteristics ofan Immoral Manager Actively opposes ethical behavior in business

Willfully ignores ethical principles in making decisions

Views legal standards as barriers to overcome

Pursues own self-interests

Is an example of capitalistic greed

Ignores interests of others

Focuses only on bottom line – making one’s numbers

Characteristics of an Intentionally Amoral Manager Believes business and ethics should not be

mixed since different rules apply to Business activities

Other realms of life

Views ethics as inappropriate fortough, competitive business world

Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)

What Are the Drivers of Unethical Strategies and Business Behavior?

The large numbers of immoral and amoral business people

Overzealous pursuit of personal gain, wealth, and other selfish interests

Heavy pressures on company managersto meet or beat earnings targets

A company culture that places profits andgood performance ahead of ethical behavior

Overzealous Pursuit of Personal Gain, Wealth, and Selfish Interests

People obsessed with wealth accumulation, greed, power, and status often

Push ethical principles aside in their quest for self gain

Exhibit few qualms in doing whateveris necessary to achieve their goals

Look out for their own best interests

Have few scruples and ignore welfare of others

Engage in all kinds of unethicalstrategic maneuvers and behaviors

Heavy Pressures on Company Managers to Meet or Beat Earnings Targets Managers often feel enormous pressure to do

whatever it takesto deliver good financial performance

Actions often taken by managers Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Stretch the rules further and further, until

limits of ethical conduct are overlooked Executives feel pressure to hit performance

targets since their compensation depends heavily on company performance

Fundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line

Company Culture Places Profits and Good Performance Ahead of Ethical Behavior

In an ethically corrupt or amoral work climate,people have a company-approved license to Ignore “what’s right” Engage in most any behavior or employ

mostany strategy they think they can get away with

Play down the relevance of ethical strategicactions and business conduct

What Is Socially Responsible Business Behavior? A company should strive to balance benefits of strategic

actions to Benefit shareholders against any possible adverse

impacts on other stakeholders Proactively mitigate any harmful effects on the

environment that its actions and business may have Socially responsible behaviors include

Corporate philanthropy Actions to earn the trust and respect of stakeholders

fora firm’s efforts to improve the general well-being of Customers Employees Local communities Society Environment

Categories of Socially Responsible Business Behavior

Linking Strategy andSocial Responsibility Management should match a company’s social

responsibility strategy to its Core values Business mission Overall strategy

The combination of socially responsibleendeavors a company elects to pursuedefines its social responsibility strategy

Some companies are integrating social responsibility objectives into their Missions Performance targets Strategies

Reasons to Behave in a Socially Responsible Manner

Generates internal benefits Enhances recruitment of quality employees Increases retention of employees Improves employee productivity Lowers costs of recruitment and trainings

Reduces risk of reputation-damagingincidents, leading to increased buyer patronage

Works in best interest of shareholders Minimizes costly legal and regulatory actions Provides for increased investments by socially

conscious mutual funds and pension benefit managers Focusing on environment issues may enhance earnings

Chapter-12

Strategy for competing in Globalize Market

What Is the Motivationfor Competing Internationally?

Gain access tonew customers

Capitalizeon core

competencies

Helpachieve

lower costsSpread

business risk across widermarket base

Obtain access to valuable natural

resources

International vs. Global Competition

International Competitor

GlobalCompetitor

Company operates in a select few foreign countries, with

modest ambitions to expand further

Company markets products in 50 to 100 countries and is expanding operations into

additional country markets annually

Cross-Country Differences in Cultural, Demographic, and Market Conditions Cultures and lifestyles differ among

countries

Differences in market demographics

Variations in manufacturingand distribution costs

Fluctuating exchange rates

Differences in host governmenteconomic and political demands

How Markets Differ from Country to Country

Consumer tastes and preferences Consumer buying habits Market size and growth potential Distribution channels Driving forces Competitive pressures

Different Countries HaveDifferent Locational Appeal Manufacturing costs vary from country to

country based on Wage rates Worker productivity Natural resource availability Inflation rates Energy costs Tax rates

Quality of the business environment varies from country to country

Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location

Multi-country

Competition

Global

Competition

Two Primary Patternsof International Competition

Characteristics ofMulti-Country Competition

Market contest among rivals in one country not closely connected to market contests in other countries

Buyers in different countries areattracted to different product attributes

Sellers vary from country to country

Industry conditions and competitive forces ineach national market differ in important respects

Rival firms battle for national championships –

winning in one country does not necessarily signal the ability to fare well in other countries!

Sellers vary from country to country Industry conditions and competitive

forces ineach national market differ in important respects

Characteristics ofGlobal Competition Competitive conditions across

country markets are strongly linked Many of same rivals compete in

many of the same country markets A true international market exists

A firm’s competitive position in one country is affected by its position in other countries

Competitive advantage is based on a firm’s world-wide operations and overall global standing

Strategy Options for Competing in Foreign Markets

Exporting

Licensing

Franchising strategy

Multi-country strategy

Global strategy

Strategic alliances or joint ventures

Export Strategies Involve using domestic plants as a

production base for exporting to foreign markets

Excellent initial strategy to pursue international sales

Advantages Conservative way to test international

waters Minimizes both risk and capital

requirements

Minimizes direct investments in foreign countries

An export strategy is vulnerable when Manufacturing costs in home country are

higherthan in foreign countries where rivals have plants

High shipping costs are involved Adverse fluctuations in currency

exchange rates

Licensing Strategies Licensing makes sense when a firm

Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets

Desires to avoid risks of committing resources to markets which are Unfamiliar Politically volatile Economically unstable

Disadvantage Risk of providing valuable technical

know-how to foreign firms and losing some control over its use

Franchising Strategies Often is better suited to global expansion

effortsof service and retailing enterprises

Advantages

Franchisee bears most of costs andrisks of establishing foreign locations

Franchisor has to expend only theresources to recruit, train, and support franchisees

Disadvantage

Maintaining cross-country quality control

Multi-Country Strategy Strategy is matched to local

market needs Different country strategies are

called for when Significant country-to-country differences

in customers’ needs exist Buyers in one country want a product

differentfrom buyers in another country

Host government regulations preclude uniform global approach

Two drawbacks1. Poses problems of transferring

competencies across borders2. Works against building a unified

competitive advantage

Global Strategy Strategy for competing is similar in all

country markets

Involves

Coordinating strategic moves globally

Selling in many, if not all, nations where a significant market exists

Works best when productsand buyer requirements aresimilar from country to country