BUSINESS POLICY AND STRATEGIC MANAGEMENT

EVOLUTION OF BUSINESS POLICY

GENESIS OF BUSINESS POLICY Origin of this course can be traced back to 1911, when the Harvard Business School introduced an integrative course in management aimed at providing general Management capability. This course took a clear shape after the Gordon and Howell report, sponsored by ford foundation and the Pierson report, sponsored by carneige corporation was incorporated into curriculum at business school in USA in the 1950s.

Historical Perspective

Hofer and other have viewed the evolution policy in terms of four Paradigm shifts. 1st Phase(Mid-1930s) - emphasis on ad-hoc policy making due to the nature of the American business firms of that period. 2nd Phase(1930s 1940s) Replacement of ad-hoc policy making with planned policy formulation due to environmental changes. 3rd Phase(1960s) Replacement of planned policy formulation with strategy making concept due to increasing complexity,environmental changes and long term needs of business.

Historical Perspective

4th Phase(1980s) Emphasis on strategic management which mainly focuses on intersection of two broad field of enquiry: a) strategic process of business firms and b) the responsibilities of general management in resolving the strategic issues.

NATURE OF BUSINESS POLICY

According to Christensen & others, Business Policy is The study of the function & responsibility of senior management, the crucial problems that affect success in the total enterprise and the decision that determine the directions of organisation and shape its future. The problem of policy in business, like those of policy in public affairs, have to do with the choice of purposes, the moulding of organisational identity and character, the continuous definition of what need to be done, and the mobilisation of resources for the attainment of goals in the face of competition.

Nature of Business Policy

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Study of function and responsibilities of senior management. It deals with the determination of future course of action. It involves choosing the purpose and defining what needs to be done in order to mould the character and identity of the organisation. It is concerned with the mobilisation of resources which will help the organisation to achieve its goals.

Importance of Business Policy

Business Policy is important as a course in the management curriculum and as component of

executive development programmes for middlelevel managers who are preparing to move up to the senior management level.

From learning point of view:

Seeks to integrate the knowledge and

experience gained in various functional areas.

Deals with the constraints and complexities of real-life situations. Cut across the narrow functional boundaries and draw upon a variety of sources or disciplines.

Makes the study and practice of management

more meaningful.

For understanding of Business Environment

Helps to create an understanding of how policies are formulated. Managers become more receptive to the ideas and suggestions of senior management.

For understanding the organisation

Presents a basic framework for understanding strategic decision making. Brings the benefit of years of distilled experience in strategic decision-making to organisation and managers. Also lead to an improvement in job performance.

Why do some organizations succeed while others fail?

Strategy is a set of related actions that managers take to increase their companys performance.

Strategy Formulation Strategy Implementation Strategy Evaluation

Competitive Advantage results when a companys strategies lead to superior performance compared to competitors
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Strategic Management
Concept of Strategy Derived from the greek word strategos, which means generalship-the actual direction of millitary force. Strategy is the direction and scope of an organisation over long term, ideally which matches its resources to the changing environment and in particular to its mkt, customers or clients so as to meet stakeholders expectation.

WHAT IS STRATEGY ?

Strategy is a planned or emergent course of action that is expected to contribute to the achievement of organizational goals.
Strategy is defined as, a unified, comprehensive, and integrated plan that relates to the strategic advantages of the firm and to the challenges of the environment. Alfred D. Chandler defines Strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.

Analysis of Definition of Strategy

Determination of basic long-term goals and objectives and course of action Allocation of necessary resources for the implementing the course of action. Common thread that pulls the policies, plans, goals, objectives of the different functional areas. Connected to the strategic positioning of a firm, making trade-offs between its different activities and creating a fit among these activities.

Characterstics of Strategy

Strategic decisions are likely to be concerned with scope of an organisation. Strategy is to do with matching of activities of aan organisation to the environment. Strategy is also to do with matching of organisational activities to its resource capability. Strategy decisions have major resource implications for an organisation. Strategic decisions likely to affect operational decisions.

Characterstics of Strategy

The strategy of an organisation will be affected not only by initial forces & resources availaibility but also by values and expectations of those who have power in and around the organisation. Strategic decisions are likely to affect the long term directions of an organisation.

Levels of Strategy:

The three level of Strategy are:Corporate Level Strategic Business Unit level/ Competitive level Functional / Operational Level

Levels of Strategic Management

Key Question for Each Level

Corporate Strategy what business(es) should the organization be in? Business Strategy how should the organization compete? Functional Strategy how should the organizations resources be best employed to support business strategy?

Corporate level
It defines the overall character & mission, products & services and allocation of resources & management. Formulated by Top level (BOD, CEO) Long term strategy encompassing the entire organisation. Strategic decisions tend to be value oriented, conceptual, involve grater risk, cost and profit potential For eg: Major financial policy decisions involving Acquisition, Diversification and structural Redesigning belong to this category.

Aspects of Corporate Strategy

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Formulation of Strategy/ Strategic Planning Strategic Implementation Strategic planning is defined as the process of deciding on objectives, on the changes in the objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use and disposition of these resources. Strategic formulation requires : Identification of Opp. & Threats Appraisal of the cos Strengths & weaknesses

Characterstics of Corporate Strategy

Strategy & policy formulation is an entrepreneurial function relates to the total enterprise. It involves a long term perspective. It involves using critical resources towards perceived Opp. In a changing environment. It is an intellectual Process

SBU / Competitive level Strategy

Concerned with which products & services should be developed & offered to which market. This translate the general statement of direction into concrete functional objectives . SBU strategy is related to Unit within the whole & Corporate strategy is related to organisation as a whole. For Eg: Policies involve New product Development, marketing mix, research & development

Functional strategy

Decision Making with respect to specific functional areas-prod, finance, marketing Concerned with doing things right,

Corporate Planning:

Corporate planning is a comprehensive planning process which involves continued formulation of objectives and the guidance of affairs towards their attainment by Top Management. Object is to identify new areas of investment & marketing which implies two things: a) the imposition of planning discipline on the present operations b) a reappraisal of business and of the direction in which it should be heading. The comprehensive nature of corporate planning process lies in that operational planning, project planning and strategic planning are its constituents.

Strategic Planning

Strategic planning refers to the formulation of a unified, comprehensive and integrated plan aimed at relating the strategic advantages to the firm to the challenges of the environment. Strategic implementation depend on Org. structure, Organisation processes, & pattern of leadership It is concerned with translation of strategy into action. It is likely to involve mobilisation & allocation of resources, structuring authority, responsibility, task & relationship flow & establishing policies. Time span of discretion is much longer, the degree of uncertainty and corresponding risks involved are much greater and judgement to be exercised.

Operational planning:

Operational planning involves the study of market conditions for existing range of pdts to maintain and improve the position of the firm in the face of competition. Short term exercise, degree of uncertainty is of low order. But firms cannot ignore long term changes in the new market for the existing products. But in order to look for new market for existing product, develop new products, create a market for the same and utilise the existing facilities and expertise to meet new requirements characterise the need for project planning.

Project Planning:

It is a forward looking exercise, concerned with new markets, new products and new facilities. It involves a greater degree of risk, uncertainty and demands a higher order of judgement on the part of planners due to the risk involved.

Advantages of Strategic Planning:

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Providing necessary guidance about what is expected to be achieved and how, Making managers more alert to new opportunities and potential threats Unifying organisational effort leading to greater harmony and goal congruence, Creating a more proactive management posture Promoting a constantly evolving business model so as to ensure bottom-line success for the enterprise Providing the rationale for evaluating competing budget requests for steering resources with strategysupportive & result producing areas.

Strategic Management:

As a overall process, it is defined as a set of decisions and actions resulting in formulating and implementation of strategies designed to achieve the objectives of an organisation. Strategic management is a stream of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives.

Benefits of Strategic mangement:

Financial benefits Enhanced capability of problem prevention Improved quality of strategic decisions through group incentives. Greater employee motivation Reduction of gaps and overlays in activities. Minimum resistance to change.

Process Of Strategic Planning & Management

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Developing a strategic vision Analysis and dignosis of current & likely future envt., identifying Opp. & threats. Analysis of internal capabilities- strength & weaknesses Setting corporate objectives in broad terms. Formulation of alternate strategies, evaluation of strategic options & choice of strategy Implementation of choosen strategy Review of strategy, monitoring the results of strategy implementation.

Modes of Strategic -Making

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Strategy making involves linking together of a no. of decisions to form strategies. Acc.to Henry Mintzberg, there are three types of modes: Entrepreneurial Adaptive Planning

Entrepreneurial Mode:

An entrepreneur is a Creative thinker, an innovator, a risk-bearer, practical in nature & is motivated by a powerful need for achievement & independence. Dominated by active search for opportunities Personal power Dominant goals consists of growth & expansion in terms of assets, market share and turnover. Broadly speaking, strategy in this mode characteristically pushes ahead in the face of environmental odds.

Adaptive Mode:

It is basically remedial in nature. Executive in this mode is concerned with solving problems of immediate importance rather than developing long-term strategies which implies bargaining with suppliers, compromising with competitors, reducing conflicts among coalitions of interest groups within the organisation. Reactive Approach Decision making power is divided among members of the coalitiongroups-Trade union,mgrs govt. agencies Decisions are made in sequential, increamental steps, onething at a time. On conclusive note, it consists of piecemeal, remedial decisions resulting from the interactions among power-group in the organisation.

Planning Mode

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It is based on a study of the fundamental socio-economic purposes of the organisation Values of top management Evaluation of the external & internal opportunities & threats Evaluation of company strengths and weaknesses.

On conclusive note: it implies a process having both proactive & reactive thrusts, systematic and structured in its approach, and results in integrated decision-making.

Factors governing the mode

Choosing of strategy-making depend upon following: Characterstics of the firm (eg. Size, leadership pattern, etc) Nature of environment in which it is placed (eg. Degree of competition, stability and predictability) Apart from these factors, others are: a. Small, young organisations which have made few commitments would inclined to Entrepreneurial mode. b. Adaptive mode would be conducive to large established organisation with power group having diverse interest. c. Planning mode should find favour with organisations which are fairly large, well endowed with the capacity to bear the cost of employing technically competent analysts in envt.

McKinseys 7- S Framework

It is developed in the late 70s by McKinsey company, a reputed management consultancy firm in the United States. 7-S model suggests that there are multiple factors which influence an organisation's ability to change. The relevance of this model to strategic management is based on 7-S which stand for policy areas vital for success.
Strategy Structure System Style Skills Staff Shared values

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McKinseys 7- S Framework
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Strategy: means to achieve organisational purpose Structure: structure of activities, work specialisation & ways in which task are integrated and coordinated. System: constitute rules, regulations and procedures Style: determine the effectiveness of organisational change effort pattern of actions of top mgt team over a period of time, reporting relationship & aspects of organisational culture. Skills: Distinctive competence which reflects dominant skills of org. Staff: Way of inducting young recruits & manage their career. Shared values: set of values and aspirations that go beyond the formal statement of corporate objectives.

Importance of McKinseys 7- S Framework in Strategic Planning & Mangement

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It highlights several organisational interconnections having critical significance for organisational change. It underlines the criticality of action plans in 7-S reflecting an organisational capability of bringing about shifts in strategy.

Strategic Management Process

Establishment of Strategic Intent 1. Vision 2. Mission 3. Objectives 4. Goals
Formulation of Strategies 1. SWOT Analysis 2. CP Strategies 3. BU Strategies 4. Strategic Choice 5. Strategic Plan Strategy Implementation 1. Project 2. Procedural 3. Resource Allocation 4. Structural 5. Behavioural 6. Functional & operational

Strategic Evaluation And Strategic Control

STRATEGIC MANAGEMENT PROCESS

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Establishment of Strategic Intent: Refer to the purpose the org. strives for- in the form of hierarchy ofVision: What the firm or person would like to become, vision statement: Core ideology (character) & Envisioned future (Time and what it will be- tech.) Mission: Purpose or Reason for its existence (Present capabilities or scope) Mission statement: defines the fundamental unique purpose & identifies the scope of Cos in terms of Pdt & Svc. Objectives: Ends results of planned Activity, stated in quantitatively & qualitatively terms. Goals: Short, intermediate result to be achieved by a certain time as a part of Grand plan, stated specifically & in quantitatively terms.

The Mission
The mission is a statement of a companys reason for existence today.

What is it that the company does?

Who is being satisfied (what customer groups)? What is being satisfied (what customer needs)? How customer needs are being satisfied (by what skills, knowledge, or distinctive competencies)?

A companys mission is best approached from a customer-oriented business definition.

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Abells Framework for Defining the Business

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7. 1-44

The Vision
What would the company like to achieve?
A good vision is meant to stretch a company by articulating an ambitious but attainable future state.

The vision of Ford is to become the worlds leading consumer company for automotive products and services. Nokia is the worlds largest manufacturer of mobile phones and operates with a simple but powerful vision: If it can go mobile, it will!
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Major Goals
A goal is a precise and measurable desired future state that a company must realize if it is to attain its vision or mission.

Key characteristics of well-constructed goals:

1. Precise and measurable
to provide a yardstick or standard to judge performance 2. Address crucial issues with a limited number of key goals that help to maintain focus 3. Challenging but realistic to provide employees with incentive for improving 4. Specify a time period to motivate and inject a sense of urgency into goal attainment

Focus on long-run performance and competitiveness.

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STRATEGIC MANAGEMENT PROCESS

Strategic Intent: of IOC

Vision: aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through quality products & services. Mission: Maintaining national leadership in oil refining, marketing & pipe line Transportation Objectives: Focused on cost, Quality customer care, value addition

STRATEGIC MANAGEMENT PROCESS

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Formulation of Strategies: Environmental Scanning: Before an organisation begin strategic formulation, it must scan the ext envt. To identify possible threats & opportunities & its envt for strengths and weaknesses. Strategies at different level to be identified (Corporate level Strategy and Business- level strategies) Strategic Analysis and Choice: this process is divided into 4 stages- focussing on alternatives, considering the selection factors, evaluation of strategic alternatives, making the strategic choice (plan).

STRATEGIC MANAGEMENT PROCESS

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Implementation of Strategies: the strategic plan is put into action through four sub processes: Activating strategies: Project implementation- No. of steps in setting up of org. Procedural implementation- Regulatory Framework Resource Allocation-Procurement & Commitment of Res. Structural : deals with designing of structures & system & reorganising to match the structure to the needs of Strategy Behavioural: consider leadership styles, corporate culture, corporate politics. Functional : relate to functional plan and policies in different functional areas Operational: deals with the productivity, processes, people and pace of implementing the strategies.

STRATEGIC MANAGEMENT PROCESS

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Evaluation & Control Evaluation operates at two level: Strategic- consistency of strategy with the environment Operational- assessing how well the organisation is pursuing a given strategy.
Control operates at two level: Strategic- premise, implementation, strategic surveillance and special control Operational- basic control operations.

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