TOPIC ONE

INTRODUCTION

INTRODUCTORY QUESTION

Why are some firms more successful than

others?
THE CONCEPT OF STRATEGY
Effective managers live in the present but concentrate on the future." James L.
Hayes

What is Strategy?
The word strategy comes from a combination of the words; stratos, which meant
army, and agein meaning to lead. Greek Language (6th century BC)
A strategy is a comprehensive action plan that identifies long-term direction and
guides resource utilization to accomplish organizational goals with sustainable
competitive advantage.

Strategy is the direction and scope of an organization over the long term: which
achieves advantage for the organization through its configuration of resources
within a changing environment, to meet the needs of markets and to fulfill
stakeholder expectations.
Strategy becomes a fundamental framework through which an organization can
assert its vital continuity, while at the same time purposefully managing its
adaptation to the changing environment to gain competitive advantage. Strategy
includes the formal recognition that the recipients of the results of a firms actions
are the wide constituency of its stakeholders. Therefore the ultimate objective of
strategy is to address stakeholder benefits to provide a base for ,establishing the
host of transactions and social contracts that link a firm to its stakeholders.

BUSINESS POLICY

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Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be
taken by the subordinates in an organization.
It permits the lower level management to deal with the problems and
issues without consulting top level management every time for decisions.
Business policies are the guidelines developed by an organization to
govern its actions. They define the limits within which decisions must be
made.
Business policy also deals with acquisition of resources with which
organizational goals can be achieved.
Business policy is the study of the roles and responsibilities of top level
management, the significant issues affecting organizational success and
the decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have following features-

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

implementation will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and
connotations. There should be no misunderstandings in following the
policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be
efficiently followed by the subordinates.

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4. Appropriate- Policy should be appropriate to the present

organizational goal.
5. Simple- A policy should be simple and easily understood by all in the
organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy
must be comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does
not imply that a policy should be altered always, but it should be wide
in scope so as to ensure that the line managers use them in
repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and
uncertainty in minds of those who look into it for guidance.
Objectives of Business Policy:

Understand various concepts, like. Strategy, policies, plans,

programmes.

Knowledge of internal and external environment and how it affects the

functioning of the organisation.

Application of generalised approach to deal with wide variety of

situations.

Development of analytical ability to understand situation. Identify

factors relevant to decision making. Analyse strength, weakness,
opportunities and threats to organisation. Development of attitude of
generalist and asses a situation from all angles.
Benefits of Business Policy

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Business Policy seeks to integrate the knowledge and experience

gained in various functional areas of Management. Normally functional
areas are aloof of complexities of real life business situations. Business
Policy cuts across the narrow functional boundaries. Business Policy
helps us to create an understanding of how policies are formulated.

Managers become more receptive to the ideas and suggestions of

senior Management. Managers feel themselves to be a part of a
greater design.

Understanding Business Policy provides a basic framework for

understanding strategic decision making and Improvement in Job
Performance.

Study of business policy leads to personal development. Managers

understand the impact of policy shifts on the status of ones
department and on the positions one occupies.

Understanding Business Policy enables manger to avail the an

opportunity or avoid a risk to career planning and development

Understand senior managements view point.

TYPES OF BUSINESS POLICIES

Basically there are three main types of policies

1. Basic Policies:- These are framed by the top management and spell out
the basic approach of a company to its activities and its environment.
2.General Policies:- These are framed by the middle level management
and are more specific. They apply to large segments of the organization.

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3.Specific Policies:- These are framed by the foremen and supervisors and
are very specific in nature. They are applicable to routine activities.
Examples of business policies are A company will not consider any cost reduction options if it means
compromising quality.
A company decides to grow only through retained earnings.
A company will not consider adding new products with less than
10 percent return on investment.
A company sells exclusively on cash terms.

A company will not question customers returns of items purchased

earlier.
A company responds to 50 percent of customer inquiries within three
working days

Difference between Policy and Strategy

The term policy should not be considered as synonymous to the term
strategy. The difference between policy and strategy can be
summarized as follows1. Policy is a blueprint of the organizational activities which are
repetitive /routine in nature. While strategy is concerned with those
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organizational decisions which have not been dealt/faced before in

same form.
2. Policy formulation is responsibility of top level management. While
strategy formulation is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and
efficient running of an organization. While strategy deals with strategic
decisions.
4. Policy is concerned with both thought and actions. While strategy is
concerned mostly with action.
5. A policy is what is, or what is not done. While a strategy is the
methodology used to achieve a target as prescribed by a policy.

TOPIC 2
CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT
Military Origins of Strategy:

Strategy is a term that comes from the Greek Strategia, meaning

"Generalship. In the military, strategy often refers to manoeuvring
troops into position before the enemy is actually engaged. In this
sense, strategy refers to the deployment of troops. Once the enemy
has been engaged, attention shifts to tactics. Here, the employment of
troops is central.

Military origins of strategy are century old. It seems sensible to begin

our examination of strategy with the military view.

Substitute "resources" for troops and the transfer of the concept to the
business world begins to take form.

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Strategy also refers to the means by which policy is effected, As per

Clauswitz the war is the continuation of political relations via other
means.

Definitions, Essence and Nature of Strategy

Definitions
Alfred D Chandler(1962) : The determination of basic long-term goals
and the adoption of courses or the courses of action and the allocation of
resources necessary for carrying out these goals
Alfred D Chandler(1984) : Basically, a strategy is a set of decisionsmaking rules for the guidance of organisational behaviour
Kenneth Andrews(1965) : The pattern of objectives, purpose, goals,
and the major policies and plans for achieving these goals stated in such
a way so as to define what business the company is in or is to be and the
kind of company it is or to be
Kenneth Andrews (1965) : Business Strategy is a method of
describing the future position of the company, its objectives, purposes,
goals, policies, and plans that may be required for guiding the company
from its existing position to where it desires to be.
Igor Ansoff(1965) : The common thread among the organisations
activities and product-marketsthat defines the essential nature of
business that the organisation was or planned to be in future
William F Gleueck(1972) : A unified, comprehensive and integrated
plan that relates the Strategic advantage of the firm to the challenges of

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the environment and is designed to ensure that the basic objectives of the
enterprise are achieved through proper implementation process
Henry

Mintzberg(1987) : Strategy is Organisations pattern of

response to its environment over a period of time to achieve its goals and
mission.
Michael E Porter(1996) : Creation of a unique and valued position
involving a different set of activities. The company that is strategically
positioned performs different activities from rivals or performs similar
activities in different ways

Summing up all the above definitions, then Strategy is

A plan or course of action or a set of decisions and rules forming a

pattern or creating a common thread.

The pattern or common thread related to the organisations activities

which move an organisation from its current position to a desired to a
future state

Concerned with the resources necessary for implementing a plan or

following a course of action and,

Connected to the strategic positioning of a firm, making trade-offs

between its different activities, and creating a fit among these
activities.

Set a clear direction to the organisation.

Knowing the strengths & weaknesses of a firm compared with those

of its competitors.

The Essence Of Strategy

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Strategy includes the determination and evaluation of alternative paths

to an already established Mission and Objectives of enterprise and
choosing the alternative to be adapted. Four important aspects of
Strategy are:
1. Long Term Objectives: It emphasises on long term growth and
development. These Objectives

give direction for implementing

Strategy.
2. Competitive Advantages: The external environment is continuously
monitored & Strategy is made to have the firm a continuous
Competitive Advantage.
3. Vector: is a Direction with Force. Series of actions are to be taken &
they should have same direction for whole organisation.
4. Synergy: Once a series of decisions are taken to accomplish the
objectives in same direction, there will be synergy. Synergy can happen
due to Competitive Advantages and Growth Vector. The Objectives
need be measurable and could be : ROI, Sales Growth Rate,
Strategy as Action & Nature of Strategy
Three types of actions are involved in Strategy:
1. Determination of Long Term Goals & Objectives.
2. Adoption of courses of action.
3. Allocation of resources.
Therefore, Strategy is Creation of unique & valued position involving a
different set of activities. The Company that is strategically positioned
performs different activities from rivals or performs similar activities in
different ways Michael Porter.
Thus Nature of Strategy is:

Strategy is a major course of action through which organisation relates

itself to its environment. (External)

Strategy is blend of internal & external factors. Face opportunities &

threats provided by external factors, internal factors are matched with
them. Strategic actions are different for different situations. Strategy is

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combination of actions to solve a certain problem to achieve a

desirable end.

Strategy may involve contradictory actions simultaneously or with a

gap of time like closing down some operations and expanding some at
same time.

Strategy is future oriented. New situations, which have not arisen in

past will require revised Strategic Actions.

Strategy requires some systems and norms for its efficient adoption in
any organisation.

Strategy provides overall framework for guiding enterprise thinking

and action.

Characteristics of Strategy

The question what is strategy? can be addressed by attempting to

find characteristics that distinguish strategic decisions from other
decisions taken within the organization.

Characteristics of strategic decisions:

affect the long term direction of the organization.

achieve an advantage, frequently over the competition.
are about the scope of the organizations activities.
match an organization to its environment.
build on an organizations resources and competences.
are the requirement for major resource changes within an organization.
have an impact on operational decisions across the organization.
give the values and expectations of the organization.

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Above all, strategic decisions are complex, involve a high degree of

uncertainty and affect the organization as a whole

Mintzbergs 5Ps of strategy

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning, points out that
people use "Strategy" in several different ways, the most common being these five:
1. Strategy is a PLAN
To almost anyone you care to ask, strategy is a plan - some sort of consciously intended
course of action, a guideline (or set of guidelines) to deal with a situation. A kid has a
"strategy" to get over a fence; a firm has one to dominate a market for a particular service
or practice area. By this definition, strategies have two essential characteristics: they are
developed consciously and purposefully.Strategy is a Plan, a "how," a means of getting
from here to there.
2. Strategy as a PLOY:
Strategy can be a ploy, too, which is really just a specific "manoeuvre" intended to outwit
an opponent or competitor. The kid may use the fence as a ploy to draw a bully into his
yard, where his Doberman Pincher awaits intruders. Likewise, a firm may threaten to
establish a new practice area in order to discourage a competitor from trying to do the
same. Here the real strategy (as plan, that is, the real intention) is the threat, not the new
practice area itself, and as such is a ploy. Threatened litigation often falls into this
category
3.
4. Strategy is a PATTERN:
Strategy (whether as general plans or specific ploys) is pointless if it cannot be realized.
In other words, defining strategy as a plan or ploy is not sufficient; we also need a
definition that encompasses the resulting behaviour. Thus, strategy is also a pattern specifically, a pattern in a stream of actions. By this definition, strategy is consistent in

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behaviour, whether or not intended. The outcome of strategy does not derive from the
design, or plan, but from the action that is taken as a result
5. Strategy is a POSITION:
Strategy is also a position; specifically a means of locating a firm in its environment. In
ecological terms: strategy becomes that firm's "niche." In management terms: a "domain"
consisting of a particular combination of services, clients and markets. Position is often
defined competitively (literally so in the military, where it becomes the site of a battle.)
6. Strategy is a PERSPECTIVE:
While position is outwardly focused, perspective looks inward into the firm; even into the
heads of the strategists themselves. Strategy in terms of this definition becomes an
ingrained way of perceiving the world. Some firms are aggressive pacesetters; others
build protective shells around themselves. Almost every profession has about it unique
perspectives, that indelibly flavour the strategies that firms practicing those professions
craft for themselves. A law firm's view of their business is fundamentally different to that
of an accounting firm, and engineering firm or a graphic design studio, yet all are staffed
by professionals.
1. Strategy is Perspective, that is, vision and direction.
The Three Levels of Strategy
The decision-making hierarchy of a firm typically contains three levels:
The corporate level

At the top of this hierarchy is the corporate level, composed principally of a board of directors
and the chief executive and administrative officers. In a multibusiness firm, corporate-level
executives determine the businesses in which the firm should be involved. Corporate-level
strategic managers attempt to exploit their firms distinctive competences by adopting a portfolio
approach to the management of its businesses and by developing long-term plans, typically for a
five-year period.

The business level

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In the middle of the decision-making hierarchy is the business level, composed principally of
business and corporate managers. These managers must translate the statements of direction and
intent generated at the corporate level into concrete objectives and strategies for individual
business divisions or SBUs. They strive to identify and secure the most promising market
segment within that arena.
The functional level
At the bottom of the decision-making hierarchy is the functional level, composed principally of
managers of product, geographic, and functional areas. Whereas corporate- and business-level
managers center their attention on doing the right things, managers at the functional level
center their attention on doing things right. Thus, they address such issues as the efficiency and
effectiveness of production and marketing systems, the quality of customer service, and the
success of particular products and services in increasing the firms market shares.

Meaning of Strategic Management

Strategic Management is Process of formulating, implementing, and
evaluating, strategies to accomplish long-term goals and sustain competitive
advantage.
Strategic management is the process in which an organization develops and
implements plans that espouse the goals and objectives of that organization.
The process of strategic management is a continuous one that changes as
the organizational goals and objectives evolve. Small businesses engage in
strategic management to ensure that they adapt to trends and external
changes such as globalization. Several key concepts characterize strategic
management and the development of organizational goals.
Essentially strategic management answers three basic questions;
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1. Where do you want your business to go? (goals),

2. How is your business going to get there? (strategy)
3. How will you know when you get there? (Evaluation).

Key Terms in Strategic Management

Strategic management, like many other subjects, has developed terminology to
identify important concepts.

1. Purpose
The organization's purpose outlines why the organization exists; it includes a description of its
current and future business (Leslie W. Rue, and Loyd L. Byars) The purpose of an organization is
its primary role in society, a broadly defined aim (such as manufacturing electronic equipment)
that it may share with many other organizations of its type.
2. Mission

The mission of an organization is the unique reason for its existence that sets it apart from all others. The
organization's mission describes why the organization exists and guides what it should be doing. Often,
the organization's mission is defined in a formal, written mission statement. Decisions on mission are the
most important strategic decisions, because the mission is meant to guide the entire organization.
Although the terms "purpose" and "mission" are often used interchangeably, to distinguish between them
may help in understanding organizational goals.

3. Goals
A goal is a desired future state that the organization attempts to realize.

4. Objectives
The term objective is often used interchangeably with goal but usually refers to specific targets for which
measurable results can be obtained.

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Organizational objectives are the end points of an organization's mission. Objectives refer to the specific
kinds of results the organizations seek to achieve through its existence and operations. Objectives define
what it is the organization hopes to accomplish, both over the long and short term.

5. Tactics
In contrast, tactics are specifics actions the organization might undertake in carrying its strategy.

6. Strategists
Strategists are the individuals who are involved in the strategic management process. Several levels
of management may be involved in strategic decision making. Strategists have various job
titles such as CEO, President, Owner, Chair of the board, Executive Director,
Chancellor, Dean, Entrepreneur.
7. Competitive Advantage
Anything that a firm does especially well compared to rival firms.
Getting and keeping competitive advantage is essential for the long term
success in an organization.
A firm must strive for sustained competitive advantage.
Vision statement
Answers the question what do we want to become
It is the first step in strategic Management.
Many vision statements are single statements
8.

Our vision is to take care of your vision

Mission Statements
Are enduring statements of purpose that distinguish one business firm
from other similar firms.

9.

A mission statement identifies the scope of a firms operations.

External Opportunities and Threats
Are factors which could harm or benefit the organization.
Comprise of the following:
Economic
Social
Political
Technological
Cultural
Demographic Environment

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11. Internal Strengths and Weaknesses

Controllable activities that are performed especially well or poorly.
Relate to functional area
Marketing
Management
Finance/Accounting
Production/Operations
Strengths and weaknesses are determined relative competitors.
Relative deficiency or superiority is important information
12. Long Term Objectives
Objectives can be defined as specific results that an organization seeks
to achieve.
Long term means more than five years.
Objectives are essential for organizational success
13. Strategies
Are the means by which long term objectives will be achieved.
Levels of Strategies
a. Corporate Strategy
b. Business Strategy
c. Functional strategy
d. Operational Strategy
14. Annual Objectives
Annual objectives are short term milestones that organizations must
achieve to reach long term objectives.
Annual objectives should be stated in terms of management, marketing,
finance/accounting, production/operations, research and development and
MIS accomplishment.
15. Policies
Policies are the means by which annual objectives will be achieved.
Policies include guidelines, rules, and procedures established to support
efforts to achieve stated goals.

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THE NATURE AND VALUE OF STRATEGIC MANAGEMENT

Strategic Management comprises nine critical tasks:

1.

Formulate the companys mission, including broad statements about its purpose,

philosophy, and goals.

2.

Conduct an analysis that reflects the companys internal conditions and

capabilities.
3. Assess the companys external environment, including both the competitive and
general contextual factors.
4. Analyze the companys options by matching its resources with the external
environment.
5.

Identify the most desirable options by evaluating each option in light of the

companys mission.
6.

Select a set of long-term objectives and grand strategies that will achieve the

most desirable options.

7.

Develop annual objectives and short-term strategies that are compatible with the

selected set of long-term objectives and grand strategies.

8.

Implement the strategic choices by means of budgeted resource allocations in

which the matching of tasks, people, structures, technologies, and reward systems is
emphasized.
9. Evaluate the success of the strategic process as an input for future decision-making.

Benefits of Strategic Management

Chance favors the prepared mind --Louis Pasteur
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1.

Strategy formulation activities enhance the firms ability to prevent problems.

2.

Group-based strategic decisions are likely to be drawn from the best available alternatives.

3. The involvement of employees in strategy formulation improves their understanding of the

productivity-reward relationship in every strategic plan and thus heightens their motivation.
4.

Gaps and overlaps in activities among individuals and groups are reduced as participation in
strategy formulation clarifies differences in roles.

5.

Resistance to change is reduced.

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