Business Policy and Strategic ManagementProf. Prashant MehtaNational Law University, Jodhpur

Business Policy and Strategic Management

Introduction

Business policy as Discipline

Meaning and Nature of Management

What is Strategy

Generic Strategic Alternatives

The Dynamics of Competitive Strategy

Strategic Management

Strategic decision Making

The Task of Strategic Management

Vision, Mission, and Objectives

Strategic Levels n Organization

Introduction

BUSINESS POLICY AND STRATEGIC MANAGEMENT ARE HIGHLY INTERTWINED

Business Policy as Discipline

• Need to develop a multi-disciplinary understanding of Business

• A capstone course that introduces accountants to marketing, marketers to

operations, production managers to human resources…. This capstone course

was often referred as BUSINESS POLICY at that time.

• Business policy came from use of planning techniques from managers.

• Then came anticipation of future through preparation of budgets and using

control system like capital budgeting and Management by Objectives (MBO).

• Then came long range planning which was later replaced by Strategic

Planning, then replaced by Strategic Management which described the

process of strategic decision making.

Business Policy as Discipline

• “Business Policy, basically, deals with decisions regarding the future of an ongoing

enterprise. Such policy decisions are taken at the top level after carefully evaluating

the organizational strengths and weaknesses in relation to its environment”.

• Integrates - the knowledge and methods learnt in functional courses such as

production , finance ,marketing , HR etc.

• Develops - the analytical skills and decision-making capabilities of students through

case studies, industry specific study and data.

• Promotes Positive Attitudes - ,ethical values and healthy ways of thinking taking a

holistic view of the internal as well as external stakeholders of an organization.

• Business Policy tends to emphasize on the rational-analytical aspect of strategic

management.

Meaning and Nature of Management

The term Management can be used in two major contexts:

• Management is key group, responsible for integrating resources (4M) and

mobilizing diverse resources, increasing productivity, facilitate

organizational change, adaption, resolution of conflicts. Besides this success

of organization depends on competence and character of management.

• Interrelated functions, organizational processes, design of organizational

structure, determination of goals, acquisition and allocation of resources,

installation of control and communication system depends on management.

Management is influence process to make things happen. Influence is

backed by power, competence, knowledge, and resources. Influence is not

unilateral but multilateral.

Management

Management in all business and human

organization activity is simply the act of

getting people together to accomplish

desired goals and objectives.

Management comprises planning,

organizing, staffing, leading or directing,

facilitating and controlling or

manipulating an organization (a group of

one or more people or entities) or effort

for the purpose of accomplishing a goal.

Management Models

TRADITIONAL

Managing Assets

Focus on Managing

Numbers

Hierarchical

Dependent Parts

Reactive

Command and Control

Blame Culture

Risk Averse

MODERN

Managing Resources &

Capabilities

Focus on Creating Value

Network

Independent Parts

Responsive

Empowered Employees

Encouraging Radical Ideas

Risk Taking

What is Strategy

“No Body Really Knows What Strategy is”.The Economist

1. What is Strategy: Explained?

Strategy is a LOT like Sailing

2. Sailing Race

What do we need?Place to go Our GOAL

Sailing Race: Strategy Elements

Activity Element

Place To Go Goal

Sailing Plan, Navigation , Charts, Timetable Plan

Boat, Supplies, Money, Food, Information Resources

Captain, Decision-maker Leadership

Procedures, Measurement Systems

People, Skills, Experience Staff/Skills

Decisions, Tasks Structure

Norms, Culture Core Values

Sailing Race

Having designed our Strategy We set sail What happens??

Start Finish

StartFinish

What is Strategy

• Derivation from the Greek work “strategos” – “a general” or to “plan the destruction of

one’s enemies through effective use of resources”

• Strategy is long range blueprint of an organizations desired image, direction, and

destination what it wants to be, what it wants to do, and where it wants to go.

• The decisions and actions that determine the long-run performance of an organization.

• intended strategy Plan for action

• emergent strategy Process

• realized strategy OutcomeSource- Henry Mintzberg, 1987

Corporate Strategy: Characteristics

• Generally Long Range in Nature, though Short Range is Possible

• Action oriented and more specific than objectives

• Multipronged, Integrated, Flexible, and Dynamic

• Formulated by Top Management, Sub strategy by middle-low level employees

• Helps cope up with competitive and complex situations

• Make best use of SWOT analysis

• Effective deployment and utilization of organizational resources

• Helps in handling environmental uncertainties and complexities

• Helps in function of decision making

• It helps to overcome impulsive and crisis decisions, false starts, misdirected moves, wasted resources uses etc.

• Helps in determination of business lines, expansion and growth, vertical and horizontal integration, diversification, takeovers, mergers, new investments, disinvestments, R&D projects and so on.

So Finally Strategy is …………………………..

• Corporate Strategy is operationalized by division or functional strategies.

• Strategy is not a substitute for management.

• Strategy can never be perfect, flawless, and optimal because it is made in

response to situation which is constantly changing.

• Good strategy, makes allowances for possible miscalculation and

unanticipated events.

Four Generic Strategic Alternatives by Willaim: F Glueck and Lawrence R Jauch

• Stability Strategy

• Expansion Strategy

• Retrenchment Strategy

• Combination Strategy

Stability Strategies

• There are a number of circumstances in which the most appropriate growth stance for a

company is stability, rather than growth. Often, this may be used for a relatively short

period, after which further growth is planned.

• Pause and Then Proceed: This stability strategy alternative (essentially a timeout) may be

appropriate in either of two situations: (a) the need for an opportunity to rest, digest, and

consolidate after growth or some turbulent events - before continuing a growth strategy,

or (b) an uncertain or hostile environment in which it is prudent to stay in a "holding

pattern" until there is change in or more clarity about the future in the environment.

• No Change: This alternative could be a cop-out, representing indecision or timidity in

making a choice for change., e.g., a small business in a small town with few competitors.

•

Expansion Strategy

• We further define an expand strategy as one in which we are growing

significantly faster than the market or market segment is growing overall. Eg.

Change in customer group, function, and technology.

• To follow an expand strategy, a company must decide to provide the resources

which will support the targeted growth rate. Whatever choices there may be,

business owners who are in the hot seat to make a judgment, should consider

the best possible option that is in line with their main objectives.

• Expansion though Diversification – Entry into new product, new market etc.

• Expansion through Merger and Acquisition - Normally, a merger means the

combination of two business firms that results into one bigger entity. Acquisition or

acquiring refers to the act of taking control over another corporation. By taking

control over a another business entity, one would hope to gain access to certain key

functions, skill or knowledge in a particular industry.

Retrenchment Strategy

• Turnaround: This strategy, dealing with a company in serious trouble, attempts to resuscitate or revive the company through a combination of contraction (general, major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner company).

• Captive Company Strategy: This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary.

• Sell Out: If a company in a weak position is unable or unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation).

• Liquidation: When a company has been unsuccessful in or has none of the previous three strategic alternatives available, the only remaining alternative is liquidation, often involving a bankruptcy.

Combination Strategy

• Corporate planning aimed at achieving two or more goals (such as

consolidation, growth, stability) simultaneously.

• Eg. An organization may seek stability in some areas of activity, expansion in

some, and retrenchment in the others.

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Critical Tasks of Strategic Management

1 Formulate the company’s mission

2 Develop company profile, reflecting its internal conditions

3 Assess company’s external environment

4 Analyze company’s options

5 Identify most desirable options

6 Select long-term objectives and grand strategies

7 Develop annual objectives and short-term strategies

8 Implement the strategic choices

9 Evaluate success of the strategic process

The Dynamics of Competitive Strategy

• Strategic thinking involves orientation

of firms internal environment with

changes in external environment.

• In external environment, economic

and technical factors helps in

achieving opportunities and closing

threats.

• Expectation of society determines

competitive strategy.

• Strength and weakness are internal

factors and determine corporate

strategy.

Strategic Management

• Strategic Management is all about identification and description of the strategies

that managers can carry so as to achieve better performance and a competitive

advantage for their organization.

• Strategic Management can be used to determine mission (to give it direction),

vision, values, goals and objectives (means and methods of accomplishing its

mission), roles and responsibilities, timelines, business portfolio, and functional

plans etc.

• The process is strategic because it involves preparing the best way to respond to

the circumstances of the organization's environment, whether or not its

circumstances are known in advance, often must respond to dynamic and even

hostile environments.

• Value creation is most important aspect of strategic process.

Strategic Management Process

• Stage 1: Involves situational analysis with respect to

environment.

For eg. Relative market position, corporate image, SWOT

analysis etc.

• Stage 2: Involves goal setting after finalizing vision

and mission.

• Stage 3: Exploring various alternatives that

organization has.

• Stage 4: Selecting the best suitable alternative after

making SWOT analysis.

• Stage 5: Involves situational analysis and monitoring.

Importance of Strategic Management

• Survival and growth of organization depends on strategic management (analysis, formulation and implementation) – win-win situation.

• It results in higher organizational performance as they become more proactive.

• It requires that managers examine and adapt to business environment changes, there by they are able to control their destiny in better way.

• It coordinates diverse organizational units, helping them focus on organizational goals and provide framework for better business decisions.

• Helps organizations to identify the available opportunities and identify ways and means to reach them.

• Serves as corporate defense mechanism against mistakes and pitfalls and help avoid costly mistakes.

• Helps organizations to evolve core competencies and competitive advantage to help it fight for survival and growth.

Strategic Decision Making

• Decision making is choosing particular course of action out of several

alternative courses for accomplishment of organizational goals.

• Decisions may be major, minor, rational, general, at various levels, strategic.

Dimensions of Strategic Decisions:

• Strategic issues requires top management decisions

• Strategic issues involves allocation of large amount of company’s resources

• Strategic issues impacts long term sustainability of firm

• Strategic issues are future oriented

• Strategic issues have major multifunctional /multi-business consequences

• Strategic issues necessitate consideration of external and internal

environmental factors

Task of Strategic Management

Strategy making / Strategy implementing process consists of five interrelated

managerial task:

• Setting Vision And Mission: Where organization is headed, provide long term

direction, infuse sense of purpose for existence.

• Setting Objectives: Specific performance outcome to achieve

• Crafting Strategy To Achieve Desired Outcomes: Results

• Implementing And Executing The Chosen Strategy Efficiently And Effectively:

Not to deviate from what is planned strategy

• Evaluating Performance And Initiating Corrective Action: Adjust vision,

objectives, and strategies in light of changing environmental conditions.

PerformExternal

Audit

PerformInternal

Audit

EstablishLong-TermObjectives

Generate,Evaluate,

AndSelect

Strategies

ImplementStrategies:

Management Issues

ImplementStrategies:Marketing,Fin /Acct,R&D, MIS

issues

Measure And

EvaluatePerformance

DevelopVision

& Mission

Statements

Strategic Management Model

St. Formulation St. Implementation St. Evaluation

Developing a Strategic Vision

• Involves thinking strategically about

• Firm’s future business plans

• Where to “go”

• The vision is more broad and future oriented

• The goal on the horizon

• Tasks include

• Creating a roadmap of the future

• Deciding future business position to stake out

• Providing long-term direction

• Giving firm a strong identity

Characteristics of a Strategic Vision

• Charts a company’s future strategic course

• Defines the business makeup for 5 years (or more)

• Specifies future technology-product-customer focus

• Indicates capabilities to be developed

• Requires managers to exercise foresight

Challenges in Forming a Strategic Vision

• How to creatively prepare a company for the future

• How to keep the company responsive to

• Evolving customer needs

• Competitive pressures

• New technologies

• New market opportunities

• Growing or shrinking opportunities

Missions vs. Strategic Visions

• A mission statement focuses on current business activities -- “who we are

and what we do”

• Current product and service offerings

• Customer needs being served

• Technological and business capabilities

• A strategic vision concerns a firm’s future business path -- “where we are

going”

• Markets to be pursued

• Future technology-product-customer focus

• Kind of company that management is trying to create

Characteristics of a Mission Statement

• Defines current business activities or its present business scope, The mission is more

focused – how you will get to the horizon

• Highlights boundaries of current business and Conveys

• Who we are,

• What we do, and

• Where we are now

• Company specific, not generic — so as to give a company its own identity and what

needs it is trying to satisfy, indicate boundary of its operations and mission

statement is highly personalized

A company’s mission is not to make a profit !

The real mission is always—“What will we do to make a profit?”

Communicating the Vision -Mission

• An exciting, inspirational vision• Challenges and motivates workforce• Arouses strong sense of organizational purpose• Induces employee buy-in• Galvanizes people to live the business

Managerial Value of a Well-Conceived Strategic Vision and Mission

• Crystallizes long-term direction

• Reduces risk of rudderless decision-making

• Conveys organizational purpose and identity

• Keeps direction-related actions of lower-level managers on common path

• Helps organization prepare for the future

Examples: Mission and Vision Statements

Our vision:

Getting to a billion connected computers worldwide, millions of servers, and

trillions of dollars of e-commerce.

Our Mission:

Intel’s core mission is being the building block supplier to the Internet economy

and spurring efforts to make the Internet more useful. Being connected is now

at the center of people’s computing experience. We are helping to expand the

capabilities of the PC platform and the Internet.

Intel

Examples: Mission and Vision Statements

Otis ElevatorOur vision to provide world class experience

Our mission is to provide any customer a means of moving people and things

up, down, and sideways over short distances with higher reliability than any

similar enterprise in the world.

Our business is renting cars.

Our mission is total customer satisfaction.

Avis Rent-a-Car

Understanding Mission and Purpose

Mission is a statement that organization plays in society.

Purpose is anything that organization strives for .

In business policy both these terms are used either singly or jointly that is

both mission and purpose go hand in hand.

Business Goals

Goals are close - ended statements of what one wishes to accomplish, with

no quantification of what is to be achieved and no time frame for

completion (precise and expressed in specific terms).

• They provide targets for assessing progress in achieving the vision

Goals are:

Directional – Move you toward the general objectives of our vision

statement

Reasonable – Are practical and obtainable; not extreme

Inspiring – Are challenging; affect you positively

Visible – Are easy to visualize

Eventual – Will be fulfilled at a future time

Long-Term Business Goals

Examples of goals might be:

• Maintain a profitable farming

operation

• Be considered the top farmer in the

county

• Be on the cutting edge of technology

• Be able to service loans on time

• Create employment for family

members

• Obtain a leadership position in the

community

Objectives

Objective are open ended attribute that denotes the future state of outcomes

that is are the end results of planned activities.

• They should state what is to be accomplished by when and should be

quantified.

• Achievement of objectives should result in the fulfillment of the mission.

Objectives are:

Specific – The objective achieves a particular, detailed result.

Measurable – There is a means to determine the objective.

Attainable – They are within economic and physical capabilities.

Rewarding – They are profitable and self-satisfying.

Timed – They have a deadline

Objectives

All organizations have objectives and pursuit of objectives is unending

process. The whole organizational structure is designed to facilitate

achievement of objectives.

Examples of objectives might be:

• To increase gross revenues 5 percent each year

• To achieve 12-15 percent return on equity within 4 years

• To reduce fixed expenses by 7 percent within 3 years

• To achieve 21 pigs per sow per year by 2004

• To hold a position on the local school board within the next 5 years

Areas for Defining Goals and Objectives

• Market standing

• Productivity

• Physical and financial resources

• Profitability

• Innovation

• Manager performance and development

• Worker performance and attitudes

• Public and social responsibilities

Strategic Managers

In companies there are two main type of managers:

• General Managers: Responsible for overall performance of the company /

subunit /division.

• Functional Manager: Responsible for supervising some function like

Finance, Accounting, Marketing, R&D, Operations etc.

• Figure in next slide on levels of strategic management shows the

organization of multidivisional company. It shows three main levels of

management viz Corporate, Business, and Functional. General managers are

found at first two levels and their strategic roles differ depending on the

sphere of responsibility.

Strategic Levels in Organizations

Some Levels of Strategy

The Impact of strategy is dramatically different depending on the level of

strategy.

• Global Strategy

• Corporate Strategy

• Business Strategy

• Functional Strategy

• Operational Strategy

Global-Level Strategies

• Multi-domestic

• International

• Global

• Transnational

Corporate Level Strategy

• What businesses are we in? What businesses should we be in?

• Four areas of focus

• Diversification management (acquisitions and divestitures)

• Synergy between units

• Investment priorities

• Business level strategy approval (but not crafting)

• Vertical integration

• Strategic alliances

• Acquisitions

• New ventures

• Business portfolio restructuring

Corporate-Level Strategies

FirmStatus

Valuablestrengths

Criticalweaknesses

Environmental StatusAbundant

environmentalopportunities

Criticalenvironmental

threats

Corporategrowth

strategies

Concentric Diversification(Economies of Scope)

ConglomerateDiversification(Risk Mgt.)

Corporateretrenchment

strategiesCan still go for business-level growth (economies of scale)

Corporatestability

strategies

Business Level Strategy

• How do we support the corporate strategy?

• How do we compete in a specific business arena?

• Three types of business level strategies:

• Low cost producer

• Differentiator

• Focus

• Four areas of focus

• Generate sustainable competitive advantages

• Develop and nurture (potentially) valuable capabilities

• Respond to environmental changes

• Approval of functional level strategies

Business-Level Strategies

• Cost leadership• Attaining, then using the lowest total cost basis as a competitive

advantage.• Differentiation• Using product features or services to distinguish the firm’s

offerings from its competitors.• Market niche focus• Concentrating competitively on

a specific market segment.

Functional / Operational Level Strategy

• Functional: How do we support the business level strategy?

• Operational: How do we support the functional level strategy?

• An example of different types of strategy.

• Business L.S.: Become the low cost producer of widgets

• Functional L.S. (Mfg.): Reduce manufacturing costs by 10%

• Operational (Plant #1): Increase worker productivity by 15%

Characteristics of Strategic Management Decisions at Different Levels