Business policy and strategic management Strategic Management Set of decisions and actions resulting in formulation and implementation

of strategies designed to achieve objectives. This requirement is due to complexity and sophistication of Business Decision making process Strategic Management is necessary for effective dealing with environmental challenges with given organizational resources. Strategy 1. Strategy is defining as achieving an organizations objectives and implementing its missions. 2. Large scale, future oriented plans for interacting with competitive environment to optimize achievement of an organizational objectives. 3. Pattern of an organizations responses to its environment overtime. 4. Long term objective or purpose of an organization. 5. Different from operating decisions i.e. day to day activities. Three Levels of Strategy Corporate Level Strategy :- Composed principally of members of board of directors and chief executive and administrative officers. They are responsible for financial performance of corporation as a whole. Orientations at the corporate level reflect the concern of all stakeholders. Business Level:- Composed Principally of business and corporate managers. These managers must translate the general statements of direction and intent generated at the corporate level into concrete, functional objectives and strategies for strategic business units. Functional Level Strategy :- Composed Principally of manager of product, geographic and functional areas. Short term strategies Benefit of Strategic Management 1. This enhances the problem prevention capabilities of the firm. 2. Group based strategic decisions are most likely to reflect the best available alternatives 3. Employee motivation improves as they appreciate the productivity reward relationship inherent is every strategic plan. 4. Gap and overlaps in activities among diverse individuals and groups are reduced. 5. Resistance to change is reduced.

Business policy and strategic management Risk of the Strategic Management 1. Manager may spend time away from work in the name of planning 2. Strategic manages must be trained to anticipate, minimize or constructively respond when participating subordinates become disappointed or frustrated over unattained expectations. 3. If formulation of strategy are not intimately involved with process, individual responsibility for input to decision process and subsequent conclusions can be shirked.

Business Policy: Business policy has grown into a field of study in management courses basically out of the experience of corporate enterprises and the history of their success and failures of business over a period of time. It is the outcome of top management decisions bearing on the future of ongoing enterprises. According to Christensen and others Business policy is the study of the functions and responsibilities of senior management, the crucial problems that affects success in the total enterprise, and the decisions that determine the direction of the organization and shape its future. The problems of policy in business, like those of policy in public affairs, have to do with the choice of purpose, the mounding of organizational identity and character, the continuous definition of what needs to be done, and the mobilization of resources for the attainment of goals in the face of competition or adverse circumstances. This comprehensive definition covers the following aspects of business policy (Nature): 1. It is the study of functions and responsibilities of the senior management. 2. It involves choosing the purpose of organization and defining what needs to be done to achieve that purpose. 3. It deals with the determination of the future course of action that an organization has to adopt. 4. It studies the crucial problems that affect the total enterprise. 5. It is concerned with the mobilization of resources, which will help the organisation to achieve its goals in the face of competition. Features of Business Policy: 1. 2. 3. 4. 5. 6. Top management function Understanding issues in bigger perspective Integration of functional areas Resource focus Externally oriented Wider application

Business policy and strategic management Scope of Business Policy and Strategic management: The scope of BPSM is very wide and covers all the aspects of policies of an organisaiton which are consistent with its vision, mission and purpose. It provides the total business perspective of the top management to visualize the organisation and its business purpose as a whole. In other words, the scope of BPSM is very wide, it starts with setting the corporate objective, it provides guidelines to set functional objectives based on them. The policies provide particular direction to functional areas in order to establish purposeful and quantitative functional goals which are in accordance with the total organizational objectives. Further it deals with SWOT analysis, environmental scanning and strategic management process.

SWOT analysis

Mission , Vision , Objectives etc.

Corporate objectives

Scanning of External and Internal Environment

Scope Of BPSM

Functional Objectives

Formulation, implementation, and control of Strategy

General Organisati onal Activities

Qualitative Functional Goals

Business policy and strategic management Evolution of Strategic Management: The origin of business policy can be traced to 1911, when Harvard Business School introduced an integrated course in management aimed at the creation of general management capability . This course was based on case studies which had been in use at the school for instructional purposes since 1908. However, real impetus for introducing business policy in the curriculum of business schools came with the publication of Gordon and Howell report and Pierson report in 1959. In 1969, the American Assembly of Collegiate Schools of Business, a regulatory body of Business Schools, made the course of business policy a mandatory requirement for the purpose of recognition. In India it has get impetus in late fifties with the setting up of the Indian Institute of Management (IIMs) and the Administrative Staff College of India in the early sixties. Hofer and others have viewed the evolution of strategic management in terms of four paradigm shifts: 1. Paradigm of Ad hoc policy (till mid 1930s): In this stage ad hoc policies were framed to integrate the firm in three dimensions i.e. product , market and customers. Because informal control and coordination became partially irrelevant as expansion took place in all the dimensions. 2. Paradigm of Planned policy (1930s and 1940s): Due to increasing environmental changes after 1930s and 1940s in the US , planned policy making replaced ad-hoc policy making. This shifted the emphasis to the integration of functional areas in a rapidly changing environment. 3. Strategy Paradigm (1960s): Rapid pace of environmental changes and increasing complexity of management made the planned policy paradigm irrelevant. This was because the need of a business could no longer be served by policy making and functional areas integration only. By 1960s there was a demand for a critical look at the basic concept of business and its relationship to the environment. The concept of strategy satisfied this requirement and the third phase based on strategy paradigm emerged in early 1960s. 4. Paradigm of Strategic Management (1980s): In this current stage the initial focus of management was on strategic process of business firms and the responsibilities of general management. Charaterstics of Strategic Management: 1. Long term direction: Strategic management is concerned with long - term direction of the organisation. 2. Recognises Changes: Strategic management recognizes that environment will change and that organisations should continually monitor internal and external events and trends, so that timely action can be taken as needed.

Business policy and strategic management 3. Oriented towards the future: Strategic management oriented towards the future. It is a long-range orientation, one that tries to anticipate events rather than simply react as they occur. 4. External emphasis: Strategic management process takes into account the external environmental factors and their impact on business. 5. Concerned with scope of the organisation: Strategic management decides the scope of operation of the organisation. 6. Strategic Management involves significant risks: Strategic management related to external environment therefore any change in environment poses risk. 7. Matching resources with the environment: Strategic management is concerned with matching the resources and activities of an organisation to the environment in which it operates. This is often referred as strategic fit. 8. Stretching resources and competences: Stretch is the leverage of the resources and competences of an organisation to create opportunities or capitalize on them. 9. Influenced by stakeholders: The strategic decisions of an organisation are not only influenced by environmental forces and resources availability , but also by the values and expectations of the stakeholders of the organisation. 10. Competitive advantages: Strategic management aims at achieving some advantage for the organisation over competitors.

Hierarchy of strategic intent:

Vision

Mission

Goals
Objectives Plans
A clear vision helps in developing a mission statement, which in turn facilitates setting of objectives of the firm after analyzing external and internal environment. Though vision, mission and objectives together reflect the strategic intent of the firm , they have their distinctive characteristics and play important role in strategic management. By strategic intent we refer to the purposes the organisation strives for.

Business policy and strategic management VISION: Well conceived Vision

Core ideology

Envisioned Future

Core Values, Core purpose

Long-term audacious goals, Vivid description of achievement

According to Bennis and Nanus vision is a mental image of a possible and desirable future state of the organisation. A well conceived vision consists of two major components i.e. core ideology which is based on enduring values of the organisation and envisioned future which consists of long-term goal and demands significant change and progress. Therefore, vision articulates the position that a firm would like to attain in the distant future. Nature: A vision represents an animating dream about the future of the firm. By its nature it is hazy and vague yet it is a powerful motivator to action. It articulates a view of a realistic, credible, attractive future for the organisation, which is better than what now exists. Developing and implementing a vision is one of the entrepreneurs central roles. He should not only have a strong sense of vision, but also a plan to implement it. For example: Henery Fords vision of a car in every garage had power . It captured the imagination of others and aided internal efforts to mobilize resources and make it a reality. A good vision always needs to be a bit beyond companys reach, but progress towards the vision is what unifies the efforts of companies personnel. Therefore, a vision should be An organizational charter of core values and principles. The ultimate source of our priorities , plans and goals A puller (not pusher) into the future A determination and publication of what makes us unique A declaration of independence 6

Business policy and strategic management

Characteristics of vision: According to El-Namaki the following are the characteristics of a good vision: 1. Coherence: Vision should be coherent so that, it can integrate the company strategy and the future image of the company. 2. Translatable: Vision must be such that it can be translated into meaningful company goals and strategy. 3. Powerful: Vision should generate enthusiasm among all the members of the organisation. 4. Challenging: It should be challenging for all organizational participants. 5. Unique: Vision should be distinguishes the company from other company. 6. Feasible: It should be realistic and achievable and there must be innovative possibilities for dramatic organizational improvements. 7. Idealistic: It should communicate the desired outcome and it should be understandable by everyone. Advantages of a good vision: 1. 2. 3. 4. Good vision fosters long-term thinking. It creates a common identity and shared sense of purpose. It is inspiring and exhilarating It represents a discontinuity , a step function and a jump ahead so that the company knows what it is to be. 5. It fosters risk taking and experimentation. 6. A good vision is competitive, original and unique 7. A good vision represents integrity When vision fails: 1. 2. 3. 4. 5. The walk is different from talk It is irrelevant It is unrealistic It is too vague It is too disconnect from present.

Business policy and strategic management MISSION While the essence of vision is a forward-looking view of what an organisation wishes to became, mission is what an organisation is and why it exists? Mission is a statement which defines the role that an organisation plays in the society. It refers to particular need of the society. According to Thompson, mission is the essential purpose of the organisation, concerning particularly why it is in existence, the nature of the business it is in and the customers it seeks to serve. Mission Statement: A mission statement is the purpose or reason for organisations existence. A well conceived mission statement defines the fundamental, unique purpose that set it apart from other companies of its type and indentifies the scope of its operations in terms of products offered and market served. A mission statement is also called a creed statement , a statement of purpose , a statement of philosophy etc. It reveals what an organisation wants to be and whom it wants to serve. It describes an organisations purpose, customers, products, markets, philosophy and basic technology. In combinations, these components of a mission statement answer a key question about the enterprise: What is our business? Characteristics of a mission statement: 1. Feasible: A mission should always aim high but it should not be an impossible statement. It should be realistic and achievable- its followers must find its credible. 2. Precise: A mission statement should not be so narrow so as to restrict the organisations activities nor should it be too broad to make itself meaningless. Therefore, it should be precise. 3. Clear: A mission should be clear enough to lead to action. It should not be a highstanding set of platitudes meant for publicity purposes. 4. Motivating: A mission statement should be motivating for members of the organisation and of the society and they should feel it worthwhile working for such an organisation or being its customers. 5. Distinctive: A mission statement which is indiscriminate is likely to have little impact. Thus a mission statement should be distinctive from other mission statement. 6. It should indicate the major components of strategy: A mission statement along with organizational purpose should indicate the major components of the strategy to be adopted. 7. It should indicate how objectives are to be accomplished.

Business policy and strategic management Importance of vision and mission statement: According to Pearce (1982), vision and mission statements have the following value: 1. They provide managers with unity of direction that transcends individual, parochial and transitory needs. 2. They promote a sense of shared expectations among all levels and generations of employees. 3. They consolidate values overtime and across individuals and interest groups. 4. They project a sense of worth and intent that can be indentified and assimilated by company outsiders. 5. Finally, they affirm the companys commitment to responsible action, in order to preserve and protect the essential claims of insiders for sustained survival, growth and profitability of the firm. Goals and Objectives

Goals denote what an organisation hopes to accomplish in a future period of time. A goal is concerned to be an open ended statement of what one wants to accomplish with no qualification of what is to be achieved and no time criteria for its completion. For e.g. increase profitability. Thus goal denote what an organisation hopes to accomplish in a future period of time. They represent a future state or outcome of the effort put in now. Goals are general and wide in nature and it is set in qualitative term for long term results.

Objective: Objectives are the ends that state specifically how the goals shall be achieved. Objectives are concrete and specific in contrast to goals that are generalized. The basic purpose of setting objectives is to convert the strategic vision and mission into specific performance targets. Roles of objectives: 1. 2. 3. 4. Objectives define the organisations relationship with its environment. Objectives help an organisation in pursuing its vision and mission. Objectives provide the basis for strategic decision making. Objectives provide the standard for performance appraisal.

Characteristics of Objective: 1. 2. 3. 4. It should be understandable It should be concrete and specific It should be related to a time frame. It should be measurable and controllable 9

Business policy and strategic management 5. It should be challenging 6. Objectives should correlate with each other 7. It should be set within constraints. Factors affecting formulation of objectives: 1. 2. 3. 4. Forces in the environment Internal resources and power The value system of the chief executive Awareness by management of past development of the firm.

Strategic Intent: Hamel and Prahlad coined the term Strategic intent. It means an ambitious goal of a firm to acquire a desired leadership position. They explain the term strategic intent on the one hand, strategic intent envisions a desired leadership position and establishes the criterion the organisation will use to chart its progress. At the same time, strategic intent is more than simply unfettered ambition. The concept also encompasses an active management process that includes: focusing the organisations attention on the essence of winning , motivating people by communicating the value of the target ,leaving room for individual and team contributors, sustaining enthusiasm by providing new operational definitions as circumstances change and using intent consistently to guide resource allocations. Overall, strategic intent points to what a firm should set out to achieve. The understanding of strategic intent is aided by three important concepts i.e. Stretch, leverage and fit. Stretch is a misfit between resources and aspirations. Leverage refers to concentrating, accumulating, complementing, conserving and recovering resources in such a manner that the meager resource base is stretched to meet the aspirations that an organisation dares to have. Fit means positioning the firm by matching its organizational resources to its environment.

Business Definition:

Derek Abell defined a business along with three dimensions of customer groups, customer functions and alternative technologies. Customer group relate to who is being satisfied , customer needs describe what is being satisfied and alternative technologies means how the need is being satisfied. 10

Business policy and strategic management

Customer functions Alternative technologies

Customer Groups

This (D. Abell) approach stresses the need for a consumer oriented rather than a product oriented business definition. The need to take a customer oriented view of a companys business has often been ignored. Consequently, even big corporations failed that did not define their business or defined it incorrectly. These firms failed to see what their business would become and ultimately they declined. American railroads assumed themselves to be in the railroad business rather than in the transportation business. They were product oriented rather than customer oriented. However, IBM defined its business as providing a means for information, processing, and storage rather than just supplying mechanic tabulating equipment and typewriters. Given this definition, the companys subsequent moves into computers, software system, office systems, and printers seem logical. IBM started having problems in 1980s because company lost sight of the fact that increasingly consumer needs for information, processing, and storage were being satisfied by low cost, personal computers, and not by mainframe computers produced by its core business. In 1960s many companies reduced their dependence on their original business by moving into unrelated areas. Strategy vs. Tactics Strategy and Tactics are often distinguished in terms of their dimensions, strategy, for the most part, is concerned with deploying resources , and tactics is concerned with employing them. Strategy deals with wide space , long period of time and large movement of forces; tactics deal with narrow space , short period of time and small movement of forces. Strategy is a comprehensive plan designed to ensure that the basic objectives of an enterprise are achieved. Tactics are the action plans of specific, step by step methods by which strategies are executed. Tactics convert the philosophy of management into practice.

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Business policy and strategic management STRATEGIC MANAGEMENT PROCESS

Mission Goals

Competitive Advantage Strength & Weakness

Strategic Choice

External Environment Opportunities & Threats

Global Level Strategy

Corporate Level Strategy

Business Level Strategy

Functional Level Strategy

Designing Organizational Structure

Implementing Strategic Change

Designing Strategic & Control System

Matching Structure and Control of Strategy

Feed Back

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Business policy and strategic management Components of Strategic Management Process 1. Selection of the corporate mission and major corporate goals. 2. Analysis of the organizations external competitive environment to identify opportunities and threats. 3. Analysis of the organizations internal operating environment to identify the organizations strengths and weaknesses. 4. The selection of strategies that build on the organizations strengths and correct its weakness in order to take advantages of external opportunities and counter external threats. 5. Strategy implementation. The task of analyzing the organizations external and internal environment and then selecting an appropriate strategy is normally referred to as strategy formulation. In contrast strategy implementation involves designing appropriate organizational structure and control systems to put the organizations chosen strategy into action. Mission and Goals The mission sets out why the organization exists and what it should be doing. Most profit seeking organizations operate with a hierarchy of goals, in which maximizing stockholder wealth is placed at or near the top.

External Analysis: - The objective of external analysis is to identify strategic opportunities and threats in the organizations operating environment. Three inter related environment should be examined at this stage: the industry environment in which the organization operates, the national environment and wider global environment. Internal Analysis: - Internal analysis serves to pin point the strengths and weaknesses of the organization. Such analysis involves identifying the quantity and quality of resources available to the organization. Building and maintaining a competitive advantage requires a company to achieve superior efficiency, quality, innovation and customer responsiveness Company strengths lead to superiority in these areas, where as company weakness translate into inferior performance. Strategic Choice : - The comparison of strengths, weaknesses, opportunities and threats is normally referred to as a SWOT analysis. The purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strengths in order to exploit opportunities and counter threats and to correct company weaknesses. To choose among the alternatives generated by SWOT analysis, the organization has to evaluate them against each other with respect to their ability to achieve major goals.

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Business policy and strategic management Global Strategies: - In todays world of global markets and global competition, achieving a competitive advantage and maximizing companys performance increasingly requires a company to expand its operations outside its home country. Corporate Level Strategies: - What business should we be in to maximize long run profitability of the organization. Vertical integration, horizontal integration, diversification, strategic alliance, acquisition, organic growth, (New ventures), Restructuring, etc. are all part of corporate level strategies. Business Level Strategy: - there are three generic business levels strategies. A. A strategy of cost leadership. B. A strategy of Differentiation (Quality). C. A strategy of Focusing on a particular market (customers satisfaction) Functional Level Strategy: - The strategies directed at improving the effectiveness of functional operations within a company such as manufacturing, Marketing, materials management, research and development and human resources are called functional level strategies. Techniques like TQM, JIT, inventory systems etc are all part of functional level strategy. Strategy Implementation Strategy implementation has four main components. 1. 2. 3. 4. Designing appropriate organizational structures. Designing control systems. Matching the strategy, structure and controls. Managing Conflict, Politics and change.

1. Designing Organizational Structure Designing a structure entails allocating task responsibility and decision making authority with in an organization how to divide the organization into sub units, how to distribute authority among the different levels of an organizations hierarchy and how to achieve integration between subunits, all these are part of designing the structure. 2. Designing Control System Organization must decide how best to assess the performance and control the actions of subunits. 3. Managing Strategy, Structure and Control If it wants to succeed, a company must achieve a fit among its strategy, structure and control.

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Business policy and strategic management 4. Managing Conflict, Politics, and Change. Although in theory, strategic management process is all rational decision making process but in practice, organizational politics plays a key role. Departments may compete with each other for a bigger share of an organizations finite resources. The Feed Back Loop In the Strategic Management Process chart the feedback loop indicates that strategic management is an ongoing process. Once a strategy is implemented, its execution must be monitored to determine the extent to which strategic objectives are actually being achieved.

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