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Q1. Describe the types of strategies pursued by businesses. Business strategy is defined as a general set of directions for the corporate to achieve a desirable state in the future. It is the driving force of the vision, mission and objectives of the company and sets the future course of the company. An organization can employ different strategies, depending upon its environment. On the basis of the place of deployment, strategy of a business can be classified into – 1) Corporate strategy 2) Business level strategy 3) Functional strategies 4) Operational strategies 5) Global strategy 1. Corporate Strategy Corporate strategy of an organization is defined as the overall direction which is pursued by an organization, which helps the business to achieve its long-term goals. The various business units or departments of the organization have to work together so as to achieve the goals for the entire organization. The determination of corporate strategy has to be decided by a systematic process which helps to achieve the pre-determined goals in the near future. The corporate strategy of an organization addresses the business in its entirety and it is crucial as it provides the guidance for the strategic decision making at all levels. The corporate strategy of an organization is often found in its mission statement. The corporate strategy of a company is formulated keeping in mind the following – a) Future prospects b) Definition of issues
c) SWOT analysis d) Competition e) Selection of strategies f) Managing business relationships g) Management practices The top level management of the organization has to decide on the questions of what, how, where, when and why for the formulation of the corporate strategy. It is important to analyse the above parameters in detail, before arriving at the corporate strategy, as this helps in setting the pace for the rest of the organization to follow. All other types of strategic decisions have to toe the line of the corporate strategy. By adopting a successful corporate strategy, a company can create value for all its stakeholders, namely the employees, management, shareholders, suppliers and consumers. 2. Business unit level Strategy A strategic business unit of any organization is a division or business unit of the organization, on the basis of a particular product line or profit centre. The strategy of the business unit can be designed at the unit level but it needs to be in line with the overall corporate strategy. The strategy at the business unit level concentrates on the product line or the service to be provided for increasing the profits. There is a lesser chance for co-ordination with other units as this type of strategy solely relates to a particular business unit. At this level, the strategy of the company needs to mainly concentrate on positioning of the product, forecasting the trends in demand and technology so that the strategy can be adapted for the same and also trying to influence the behaviour of competition. The organization’s business level strategies help to address the customers by understanding the demographic and psychographic choices of the customers with respect to the products and services. This helps in creating value in the minds of the customers.
According to Porter, there are five forces which affect the level of competition for any industry. He classified these five forces as rivalry, customers, suppliers, entrants and substitutes. He also suggested three strategies which help an organization to gain an edge over its competition. Let us now look at the three strategies suggested by Porter – 1) Cost leadership strategy 2) Differentiation strategy 3) Focused strategy. Apart from the above strategies, some companies follow an integrated strategy which is a combination of two or more of the above strategies. 3. Functional Strategy The functional level of an organization refers to the level of the departments or operating sections. The strategies for the functional unit relate to the business processes for that function. Functional level strategies may differ from one function to the other depending upon whether the function relates to marketing, finance, HR or operations. These strategies devise the way forward for that function by realigning the business processes of the function and increasing the savings or profits. The functional units also serve to input the necessary details for the business unit level or corporate level strategies. Once these strategies are decided by the top brass, the functional units prepare action plans to implement these strategies at their level. For functional strategies to be more effective, it is important to ensure that the organization has a sound functional structure. A good functional structure is based on the elements of clarity, specialisation, co-ordination, skill development and suitability. If the functional structure is cohesive, it contributes to better implementation of the functional strategy. On the other hand, if the employees are unclear about the function’s structure, they are likely to be less productive as they are unsure about their standing in the organization. An organization can classify its functions on the basis of product departments, geographical departments, strategic business units,
projects or matrix structures. In recent times, organizations are also classified as virtual corporations, team organizations and boundary less organizations. 4. Operational Strategy Operations of any organization refer to the systematic process, which enables the transformation of inputs into finished products or service. It is important for an organization to adopt an effective operational strategy, as this strategy helps in determining the quality of product or service offered. The operational strategy has to be consistent with the overall corporate strategy. It is important to design and implement effective operating systems, for implementation of operational strategy. 5. Global Strategy In the current era of globalisation of trade and advancement of e-commerce practices, most companies are no longer confined to narrow regional markets. Many companies across the world have currently gone global, thanks to the rapidly falling trade barriers. With the increase in the number of companies having international branches, it becomes important for managers to devise separate strategies for the global markets. The advantage of a firm in global markets can arise from several factors such as efficiency, strategy, risk diversification, learning opportunities and reputation. Any global firm needs to have strategic objectives such as efficiency of operations, flexibility and the ability to innovate and learn. These objectives differ from one country to another depending upon the economic differences. The potential to globalize a company can be ascertained based on several factors such as the cost differentiation, common customer needs and increase in global competition, deregulations and liberalisation policies adopted by the Governments of various countries. There could be other factors such as comparative advantages of a particular country due to availability of natural resources, cheap labour and high population density to support labour intensive industries. The organization can enter global markets through various methods such as exports, licensing, franchising, joint ventures, strategic alliances or foreign direct investments.
Q2. What is meant by business policy? Explain the importance of business policy. Definition of a Business Policy Before going into the details of business policy, let us study the definition of business policy as given by eminent authors and practitioners of Management. "Business Policy is the study of functions and responsibilities of general management and the problems which affect the character and success of the total enterprise" – Learned Andrews Christensen and Gath "The study of issues and problems encountered by managers whose principal responsibility is the long-term development of the total enterprise" – Thomas Denis "A business policy is nothing more than a well-developed statement of directions and goals. Goals involve definitions of precisely what the business is or should be and the particular kind of company it should be. Directions guide the actions of the firm to accomplish these goals." Edmond & Gray. " A policy is a statement or a commonly accepted understanding of decision-making criteria or formulae prepared or evolved to achieve economy in operations by making decision; relatively routine on frequently occurring problems and consequently facilitating the delegation of such decisions to lower managerial levels" – Miller and Earnest C. "A management policy is a pre-determined selected course established as a guide towards accepted goals and objectives. Policies establish the framework of guiding principles that facilitate delegation to lower levels and permit individual managers to select appropriate tactics or programmes" – Yoder & Dale. Importance of Business Policy The Business Policy is expected to play a very significant role in any business enterprise. Business Policy is the medium through which the Management can expect to achieve its goals over a period of time. In the absence of sound and clear cut policy decisions, it will be
impossible to handle various issues like the form of the organization, the method of production to be followed, raising funds for nurturing the growth of the business and the marketing of goods etc. There are a host of day-to-day problems which can be solved by the managers at the operating level with the help of policies to guide them. In short, the policies help managers at different levels of the Managerial Pyramid in discharging their duties efficiently and thereby help them in achieving the corporate goals by integrating the various business operations. Business Policy, as a distinct field of study, was introduced at Harvard University as early as in 1911. If you have just started out in business or have been in business for years, it’s imperative to thoroughly develop company policies. A company policy is a rule or guideline, a company follows when faced with a particular problem or issue. The more situations or policies you develop, the smoother your business will operate. Without a policy the organization will function arbitrarily in an anarchic way and may not reach its objectives. 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 the organization in the long-run. Business policies may be of the following types:a) External Policies – Policies framed to give effect to the decisions of the Government, judiciary, trade associations and such other external forces are called external policies. b) Internal Policies – Policies formulated to give effect to certain decisions taken by the owners of a business establishment are called internal policies.
c) Implicit Policies – These policies are not stated outwardly. For Example, every organization follows certain policy for the recruitment of employees. Such a policy is not usually stated explicitly. d) Explicit policies – Those policies of an organization that are stated outwardly are called explicit policies. Such policies form part of the organization manual. Most of the policies of an organization are explicit in nature. The sales policy, credit policy, etc., may be cited as examples. The top management of a business is responsible for evolving and formulating a business policy. So, the phenomenal success or total failure of a business depends on the skill, energy and business acumen of the Top Management Team. Therefore, it is very essential to have people with business acumen, sound technical knowledge and adequate general knowledge backed by common sense to be the members of the top management team.
Q3. What are the objectives of Strategic Management?
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