Business Policy and Strategic Management

Business Policy and Strategic Management
Prof. Prashant Mehta
National Law University, Jodhpur

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

BusinessPolicyas 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.

BusinessPolicyas 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.

Meaningand 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.

ManagementModels
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

Whatis 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

SailingRace: 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

SailingRace
Having designed our Strategy  We set sail  What happens??
Start Finish
Start
Finish

Whatis 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  Outcome
Source- Henry Mintzberg, 1987

CorporateStrategy: 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.

ExpansionStrategy
• 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.

RetrenchmentStrategy
• 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.

CombinationStrategy
• 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.

21
CriticalTasks 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

TheDynamicsof CompetitiveStrategy
• 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.

Framework of
Strategic
Management
Process
Stage 1:
Where are
we now
(Beginning)
Stage 2:
Where we
want to be
(End)
Stage 3:
How we can
get there
(Means)
Stage 4:
Which is best
way
(Evaluation)
Stage 5:
How can
ensure arrival
(Control)

Strategic ManagementProcess
• 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.

Importanceof 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 DecisionMaking
• 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.

Perform
External
Audit
Perform
Internal
Audit
Establish
Long-Term
Objectives
Generate,
Evaluate,
And
Select
Strategies
Implement
Strategies:
Management
Issues
Implement
Strategies:
Marketing,
Fin /Acct,
R&D, MIS
issues
Measure
And
Evaluate
Performance
Develop
Vision
&
Mission
Statements
StrategicManagementModel
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 inForming 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 Elevator
Our 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

UnderstandingMissionand 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.

BusinessGoals
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-TermBusinessGoals
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 DefiningGoals 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

SomeLevels 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-LevelStrategies
• Multi-domestic
• International
• Global
• Transnational

CorporateLevel 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-LevelStrategies
Firm
Status
Valuable
strengths
Critical
weaknesses
Environmental Status
Abundant
environmental
opportunities
Critical
environmental
threats
Corporate
growth
strategies
Concentric Diversification
(Economies
of Scope)
Conglomerate
Diversification
(Risk Mgt.)
Corporate
retrenchment
strategies
Can still go for business-level
growth (economies of scale)
Corporate
stability
strategies

BusinessLevel 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-LevelStrategies
• 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/ OperationalLevel 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%

Characteristicsof Strategic Management
Decisionsat DifferentLevels
CHARACTERISTICS LEVELS OF STRATEGY
CORPORATE BUSINESS FUNCTIONAL
TYPE CONCEPTUAL MIXED OPERATIONAL
MEASURABILITY VALUE JUDGEMENT
DOMINANT
SEMI QUANTIFIABLE USUALLY QUANTIFIABLE
FREQUENCY PERIODIC OR SPORADIC PERIODIC OR SPORADIC PERIODIC
RELATION TO PRESENT
ACTIVITIES
INNOVATIVE MIXED SUPPLEMENTARY
RISK WIDE RANGE MODERATE LOW
PROFIT POTENTIAL LARGE MEDIUM SMALL
COST MAJOR MEDIUM MODEST
TIME HORIZON LONG RANGE MEDIUM RANGE SHORT RANGE
FLEXIBILITY HIGH MEDIUM LOW
COOPERATION REQUIRED CONSIDERABLE MODERATE LITTLE

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