You are on page 1of 101

UNIT 1

Business Policy Introduction to Business


Policy & Strategic Management
Meaning
It refers to those set of perspective management measures
taken with a view to ensuring the survival and long term
success of an enterprise in a competitive environment

Origin of Strategic Management


The term is derived from the ancient
Anthenian position of strategos. Strategos
was a compound of Stratos which meant
army & agein to lead.
Strategy as defined in the 1st century as
everything achieved by a commander, be it
characterized by foresight, advantage,
enterprise, or a resolution

Continue.
The academic origins of strategic management
come from the field of economics and
company theory.
Economics provided a way to begin exploring
the role of management decisions & the
possibility of strategic choices.
1960s (each organization situation is different
and the best way of managing depended on
the solution)

Continue..
1970s & 1980s , a distinct academic field as
researchers began to study companies,
managers, & strategies.
Two camps were evolved one for process (formed
and implemented) & other on content of
strategic mgmt(strategic choice & performance).
1980s strategic was used as a personal mission
statement of CEOs, rationalized by board &
bought into the chief shareholders.

Continue
More line managers were becoming responsible
for planning & strategies, decisions started
affecting strategy.
During this period the researchers & scholars
gave a broader emphasis into change the name
of the course from business policy to strategic
mgmt.
In Harvard business school, where it is a course,
the first half of the course considers the
formulation of effective strategies, & second half
for implementation of the selected strategy

Continue
Terms such as Strategic mgmt, corporate
strategy & corporate planning are used
interchangeably. However, a distinction can be
drawn between them.eg. CRL
Japanese practices such as TQM by using best
practice, competition based on operational
effectiveness (no strategic development)

Definition
Guleck defines strategy as a unified,
comprehensive & integrated plan relating the
strategic advantages of the firm to the challenges
of the environment. It is designed to ensure that
the basic objectives of the enterprise are
achieved
Strategic Management is defined as that set of
decisions and actions which leads to the
development of an effective strategy or strategies
to help achieve corporate objectives.

Key parts of definition of strategic


mgmt. are..
It helps a company to reach its goals
It is comprehensive, it covers all major aspects
of enterprise.
In involves decisions & actions
It is not a single, simple action but a series of
related decisions & actions
It should match the strength & weaknesses
with the environment opportunities & threats.

Some related concepts


Strategic Planning & Tactical Planning:
Strategic Planning is a process by which top
mgmt determine organizational objectives,
strategies needed to reach these objectives
and short-range, top level actions necessary to
implement the strategy properly
Tactical Planning on the other hand refers to
short-range planning that is oriented towards
operations & short-term details.

Formal & Informal planning


Formal in a organized and formalized way
generally in large organization.
Informal- commonly with small enterprises,
and sometimes with one man dominated not
so small enterprises, it is in casual way

Enterprise strategy
It is the organizations plan for establishing the
desired relationship with other social
institutions and stockholder group and
maintaining the overall character of the
organization

Policy
A policy is a broad, general guide to action
which constrains or directs goal attainment.
They provide the boundaries within which the
objectives must be pursued. It serve to
channel and guide for implementation of
strategies

Strategic Business Unit


It is an operating divisions of a firm which
serves a distinct product/market segment or a
well defined set of customers or a geographic
area.
There are different factors which decides
SBUs. Each product line or a group of related
product lines may form an SBU.

Core Competence
They are the collective learning in an
organization, especially how to coordinate
diverse production schemes & integrated
multiple streams of technologies.
Eg. Assets, infrastructure, privilege access and
protected market are not core competencies
even though they may lead to higher than a
average profits under some circumstances.

Classes of Decision
Operating Decisions: eg. Production,
inventory, marketing policies etc.
Strategic decisions: expansion strategy,
marketing strategy, finance strategy etc.
Administrative decisions: resource acquisition
& development, financing facilities and
equipment, personnel, raw materials etc.

Need for Strategy

Provide direction
Helps in decision making
Co-ordination among all strategic initiatives
Optimal resource allocation
Act as a pre-program/guide

Need for Strategic Management


Different School Thoughts
A. Formal vs. informal process
Formal maintains disciplines, stricter review of
performance, unambiguous responsibility etc.

B. Differentiated vs. integrated tasks


split between those who formulate the policy
and those who implemented

Benefits and Relevance of Strategic


Management
1. Envision an organizations future
2. Articulation of the mission & objectives
3. Facilitates better delegation, coordination,
monitoring etc.
4. Guide to take measures

Continue..
1.
2.
3.
4.

SWOT analysis
Constant monitoring
To meet competition
Make Management dynamic, appropriate to
the environment
5. It is more effective than others (who do not
follow strategy)

Misgivings
1.
2.
3.
4.
5.
6.
7.

Based on fixed premises


SWOT analysis
Reflects in Mission & Objectives
Over-ambitious
Opportunities are overlooked
Very rigid
Results depends on implementation

Continue

8. Lack of Commitment
9. Resistance to Management of Change
10. Requires expertise
11. Expensive
12. May leads to failure of Firms
13. Misconception of the concepts

Strategic Management Process


Strategy Formulation
A. Determination of Mission & Objectives
B. SWOT analysis
C. Strategic alternatives
a. evaluation & choice
b. suitability
c. feasibility
d. acceptability
D. Implementation
E. Evaluation & control

Unit II
Strategic Intent
Meaning of the term Mission:
The term mission, objectives and goals are
terms used many a time interchangeably.
However, in corporate literature they are often
used distinctively. Mission leads to objectives,
objectives leads to goals and goal leads to
targets(which are set to achieve the goals)

Meaning of the term Mission


A mission statement is an enduring statement
of purpose that distinguishes one business
from other similar firms.
A mission statement identifies the scope of a
firms operations in product and market terms
. Mission is also know as vision, value statement
& principles
Mission & Vision are often used as
synonymous, mission evolves from the vision

Continue.
Fred David observes, a mission statement
reveals the long term vision of an organization
in terms of what it wants to be and whom it
wants to serve. It describe an organizations
purpose, customers, products or services,
markets, philosophy, and basic technology

Continue
According to McGinnis, a mission statement:
1. should define what the organization is and
what the organization aspires to be
2. should distinguish a given organization from
all other
3.Should serve as a framework for evaluating
both current and prospective activities
4.Should be stated in such a manner that, it is
understood throughout the organization.

Elements of Mission statement


1. Clearly Articulated: easy to understand so that
the values of the organizations are clear to
everybody
eg. O.P. Jindal group, to be a globally
competitive player with a burning desire to
become the no 1 in the steel industry
2. Relevant: should be appropriate to the
organization in terms of its history, culture and
shared values.

Continue
3. Current: environmental factors and
organizational factors may necessitate
modification of the mission.
4. Written in a positive(inspiring) Tone: A
statement should be capable on inspiring and
encouraging commitment towards fulfilling
the mission.
5. Unique: it should establish the individuality, if
not uniqueness, of the company

Continue
6. Enduring: it should continually guide and
inspire & be challenged in the pursuit of its
mission, never achieving its ultimate goal.
7. Adapted to the Target Audience: the target
audience has a bearing on the length, tone &
visibility of the statement.

Formulation & communication of


Mission
Founders establish the mission
In some cases CEO & BOD or a committee
constituted for this purpose
Joint consultation
It is communicated to the employee through
purposive meetings, notice boards, company
news letters, conversations, other meetings,
letters & badges.

Mission & Strategy

Sets direction for the strategy


Focuses the organization on action
It creates disciplined organization
Mission statements are the operational,
ethical and financial guiding lights of
companies.
Defines companies business

Suggestion by Drucker
What is our business?
What will our business be?
What should our business be?

Vision
Johnson: vision is a clear mental picture of a
future goal created jointly by a group for the
benefit of other people, which is capable of
inspiring & motivating those whose support is
necessary for its achievement
Shoemaker: vision is the shared understanding
of what the firm should be & how it must
change.

Characteristic of Vision
1.
2.
3.
4.

Possibility
Desirability
Actionability
Articulation

Effective Vision Statement

Must be easily communicable


It must be graphic
It must be directional
Must be focused
Must be appealing to(long term interest of
stakeholders)
Must be flexible

Some leading examples of Vision


Statements
A Coke within arms reach of everyone on the
planet(Coca Cola)
Become a Premier Company in the
World(Motorola)
Eliminate what annoys our bankers and
Customers(Texas Commerce Bank)

How Does Vision Compare


Vision:

Paints a picture of the future & is


inspirational
Mission: it Depicts what the organization is &
does not where it is headed in future
Philosophy: it articulates values & beliefs of an
organization without prescribing
what the future will look like
Goals & strategy: it defines specific outcomes.

Importance of Vision

A basis for performance


Reflects core values
Way to communicate
A desirable challenge
Beacon
Helps to prepare for future

Advantages of Vision
Long-term thinking
Creates a common identity and a shared sense
of purpose
It is inspiring & exhilarating
A good vision is competitive, original & unique
It represent integrity

Vision Failure

Too specific
Too vague
Too inadequate
Too unrealistic

Objectives, Goals & Targets


Objectives may be defined as those ends
which the organization seeks to achieve by its
existence and operations
Goal is defined as an intermediate result to
be achieved by a certain time as part of the
grand plan. A plan can, therefore, have many
goals
Targets : referred to as specific goals

IMPORTANCE OF OBJECTIVES
1. Justify the Organization: indicated the
purpose & aims for the existence of an
organization
2. Provide Direction: it should be clear as it
aims to direction for achievement of the
common purpose.
3. Basis for MBO: clearly formulated objectives
form the basis for MBO which is a way of
mgmt for results.

Continue
4. Help Strategic Planning/ Management: it is a
means to achieve the objectives.
5. Help Co-ordination: objectives helps coordinate decisions and decision-makers by
directing
6. Provide standard for assessment & Control:
without objectives, the organization has no
objectives basis for evaluating its success

Continue..
7. Help Decentralization: By making clear the
organizational objectives to various elements
in the organization.

Guidelines for Ideal objectives


a.
b.
c.
d.
e.
f.
g.
h.

Participation
Clarity
Realism
Flexibility
Consistency
Ranking
Verifiability
Balance

Factors affecting objectives


A.

External Environment
Government Policy
Market Structure
Competitors
Legal restriction
Political environment
Social responsibilities

Continue..

B. Internal environment
Enterprises resources
Internal Power
Shareholders
Management
Employee

Hierarchy of Objectives

Promoters Vision
& value
Stockholders
Expectation
Environmental
factors

Mission
Corporate Objectives
SBU objectives

Departmental Objectives
Divisional objectives
Individual Objectives

Classification of Objectives
Economic objectives
1. Survival
2. ROI
3. Growth
4. Innovation
5. Market share

Social objectives

Towards consumers
Towards employee
Towards society
Towards Govt.

Primary & secondary Objectives


Primary objectives:
1. Development & Expansion
2. Returns to Shareholders & employees
3. Reduction on price for consume
Secondary objectives
1. Bonus to workers
2. Promote education, R&D etc.
3. Assistance in developing the industry

Short-run & long-run objectives


Short-run objectives may be a means to
achieve long-run objective
Long-run objectives example R&D

Meaning of Goals
A goal is considered to be an open-ended
statement of what one wants to accomplish
with no quantification of what is to be
achieved and no time criteria for its
completion.
Increased Profitablity

Goals & Objectives


General
Qualitative
Broad organization- Wide
target
Long term results
Eg. Growth, efficiency,
profitability, utilization of
resources etc.

Specific
Quantitative, measurable
Narrow targets set by
operating division
Immediate, short term
results
Eg. 20% growth, 10%
efficiency, 100%
utilization of resources
etc.

Meaning of Strategic Intent


A company with an ambitious goal with its full
resources and action on achieving the goal or
becoming a dominant company in the
industry, offering best customer service that
no one can surpass etc.
Such strategic indent required sustained
efforts for a number of years to achieve them.

Some leading examples


Nikes strategic intent during 1960s was to
overtake Adidas, which they ultimately
achieved
Wal-Marts strategic indent was to overtake
Sears as the largest American retailer, which
they achieved in 1991
Hondas strategic indent was to crush, squash
& slaughter Yamaha.

Corporate Strategy Formulation


Four Basic Approaches for Strategy
Formulation
1. The Design approach
2. The Learning/ Experience Approach
3. The Power Approach
4. The Ideas Approach

Design Approach
This model was first explored by Ansoff (1965)
In this approach, strategy is formulated by top
Mgmt through careful analysis
This was one of the best way to develop
strategy, if followed, was believed almost to
guarantee corporate success
Assumption behind this approach is that human
being always behave rationally, and external risk
can be viewed & interpreted in purely objective
terms.

The learning/Experience approach


It is dynamic in nature, flexible
Once the organization has adopted particular
strategy, it tends to develop from & within that
strategy.
A strategy in such organization is not preplanned, rather it develops on the basis of a
series of action.
It is the outcome of individual & collective
experience & cultural processes in & around
organization

Power Approach
This approach perceives strategy formulation as a
negotiating process, intra-organizational politics &
power.
Lindbloom(1959) was an early proponent of this
approach he drew attention to the ways in which value
judgments influence the planning process.
On these observations, the power view argues that
strategy-making is not a scientific, comprehensive or
rational process, but a negotiated process,
characterized by restricted analysis & bargaining
between the players involved.

Ideas approach
This approach sees strategy as emerging from
innovation that comes from the variety &
diversity which exist in & around
organizations.
New ideas come, not from the top, but quite
likely from lower down in the organization.
More the experience more will be innovation.

Summary of Strategic Approach


Design
Approach

Learning
Approach

Power Approach

Ideas approach

It develops
through a
rational,
analytical,
structural
approach

It develops
based on
individual &
collective
experience

It develops through
the process of
bargaining &
negotiation among
powerful interest
groups

It develops through
innovation arising out
of variety & diversity
in & around the
organization

Change comes
from
implementatio
n of planned
strategy

Change is
Incremental change Change is incremental
incremental
is adaptive
but occasionally
with
sudden
resistance to
major change

Conclusion
Form the above discussion it may be noted
that design approach which emphasizes
analysis & control, is the orthodox approach.
Other approaches are important as they pose
significant challenges in thinking about &
managing Strategy.
Learning approach highlights how strategies
are develop incrementally based on
experience

Continue..
Power/political approach emphasizes how
strategies are the outcome of processes of
bargaining & negotiation among powerful
internal & external group.
Ideas approach helps an understanding of
where innovative strategies come from & how
organization cope with dynamic environment.

Corporate Governance
Defined as the relationship among various
participants in determining the direction &
performance of corporation
Participants being : SH, Mgmt, BOD.
It also encompasses the combination of law,
regulation, voluntary corporate practices that
enable the corporation to attract
Capital, Perform Efficiently, achieve corporate
objectives, meet obligations.

Importance of Corporate Governance


Promote efficient use of Resources
Compliance with laws, regulation &
expectation of society
Reduce corruption in business dealings

Need for Corporate Governance

Attract investor
Create competitive & efficient enterprises
Enhance accountability
Promote efficient & effective use of limited
resources.

4 Pillars of Good Governance


1.
2.
3.
4.

Fairness
Transparency
Accountability
Responsibility

Corporate Philosophy
Corporate Philosophy (or creed) establishes
the values, belief, and guidelines for the
manner in which the organization is going to
conduct its business.
The most important factor in corporate
success is faithful adherence of these beliefs.
It establishes the relationship between the
organization & its stakeholders.

Corporate Culture
Meaning
It is an organization comparable to personality in
a person. Humans have fairly enduring &
stable traits that help them protect their
attitudes & behaviors. So do organizations.
It refers to the collective assumptions & beliefs
of an organizations employees that shape the
behavior of individuals & groups in the
organization

Developing Corporate/ organizational


Culture
Origin of Organizational Cultures
a) History
b) Environment
c) Staffing Process
d) Socialization Process

Continue..
2.
a.
b.
c.
d.
e.
f.

Identifying Organizational Culture:


Industrial Autonomy: independence, opportunities
Structure: Rules & Regulation
Support: Assistance & Warmth
Identification: employees identification towards co.
Performance Record: Salary, promotion etc.
Conflict Tolerance: degree of tolerance between peers
& work group
g. Risk Tolerance: encouragement to innovation.

Continue
3. Changing corporate Culture:
Difficult task
Clear written statement of corporate philosophy
Important to practice, not just preached
Change the senior Management

Unit III
Internal & Environmental Analysis
The organization in which organization
operates consists of two parts
1. External
2. Internal

Characteristics of Business
Environment

Complex
Dynamic
Uncertain
Turbulent (unpredictable)

Environmental Analysis
It is the process of monitoring the events &
evaluating trends in external environment, to
identify both present & future opportunities &
threats that may influence the firms ability to
reach its goal.
It is from such an analysis that manager can
make decisions on whether to react to, ignore,
or try to influence or anticipate future
opportunities & threats discovered

Opportunities & Threats


Opportunities: Attractive arena for companys
action in which the particular company would
enjoy competitive advantage
Threats: Unfavorable situation in a firms
environment that creates a risk or cause
damage to the organization.

Importance of ENVIRONMENTAL
Analysis
1. Helps to perceive opportunities & threats
2. Provides information on the nature of
competition
3. Avenues for productive cooperation
4. To assess their impact & influence
5. Adapt companys direction & strategy as
needed
6. To set appropriate objectives

Continue..
7. To analysis & evaluate strategic alternative
8. To work out networks & cooperative ventures
9. To avoid strategic surprise & to ensure long
term health.

Environmental forecasting( inputs to


forecasting)
Environment
Scanning

Environment
monitoring

Environment
intelligence

Forecast

Continue..
Environment Scanning: involves surveillance
of a firms external environment to predict
changes to come.
Environmental Monitoring: tracks the trends,
sequence of events or stream of activities.
Competitive intelligence: it provides critical
information on competitors, & helps a
company to avoid surprises by anticipating
competitors moves.

Features of environmental analysis


Holistic exercise
Continuous Activity
Exploratory Process

Components of External Environment


Mega or Macro environment
1. Legal
2. Political
3. Economic
4. Technological
5. Socio-cultural
6. Demographic
7. Ecological

Operating or relevant environment


1.
2.
3.
4.
5.
6.
7.

Suppliers
Markets intermediaries
Competition
E-commerce
Skill level of workforce
Financial institution
Regulatory provision

Industry and Competitive environment


Structure and characteristic of the industry
Competitive forces

Michael Porter Five Forces Models


Porter five forces analysis is a framework for industry
analysis and business strategy development . It draws
upon industrial organization (IO) economics to derive
five forces that determine the competitive intensity
and therefore attractiveness of a market.
Attractiveness in this context refers to the overall industry
profitability. An "unattractive" industry is one in which
the combination of these five forces acts to drive down
overall profitability. A very unattractive industry would
be one approaching "pure competition", in which
available profits for all firms are driven to normal profit

Porters Five Forces Model


Bargaining Power
Of Suppliers

Suppliers

Threats of Substitute
Products or service

Potential
Entrants

Threats of new
entrant

Industry
Competitors
Rivalry among
existing firms

Sustitutes

Buyers

Continue
Three of Porter's five forces refer to competition
from external sources. The remainder are internal
threats.
It consist of those forces close to a company that
affect its ability to serve its customers and make
a profit. A change in any of the forces normally
requires a business unit to re-assess
the marketplace given the overall change
in industry information. The overall industry
attractiveness does not imply that every firm in
the industry will return the same profitability

Continue
Porter's five forces include - three forces from
'horizontal' competition: the threat of substitute
products or services, the threat of established
rivals, and the threat of new entrants; and two
forces from 'vertical' competition: the bargaining
power of suppliers and the bargaining power of
customers.

Advantages of Model
It is a powerful tool that helps managers to
think strategically
it leads managers to think systematically
about the way their strategic choices will be
affected by the forces of competition & how
their choices will affect the five forces &
change conditions in the industry.
Helps in improvement of firms competitive
positions

Continue
Helps in taking long term decisions
Helps in resource planning

Critical Assessment of Porters Model


It is based on assumption of Industrial
organization perspective on strategy as
opposed to the resources based view (RBV) of
the firm
It does not take into the fact that some firms,
most notably the large ones, can take step to
modify the industry structure, there by
increasing the prospects for profits.

Continue..
It overlooks the many potential benefits of
developing constructive win-win partnerships
with suppliers & customers.
A firm that competes internationally must be
concerned with multiple industry structures.
The nature of industry competition in the
international area differs among nations, &
may present challenges that are not present in
a firms host country

Internal Analysis
It is referred to as internal appraisal,
organizational audit, internal corporate
assessment etc.
Research has shown that the overall strength
& weaknesses of a firms resources &
capabilities are more important for a strategy
than environmental factors.

Importance of Internal Analysis


To find where it stands in terms of its
strengths & weakness
To exploit the opportunities that are in line
with its capabilities
To correct important weaknesses
To defend against threats
To asses capabilities gaps & take steps to
enhance its capabilities

Strength & Weaknesses Meaning


A. Strengths: these are the resources, skills or
other advantages a firm enjoys relative to its
competitors.
It is also something a company is good at
doing. These are
1. A skill or an important attribute
2. Valuable physical assets
3. Valuable intangible assets etc.

Weaknesses
B. It is limitation or deficiency in resources, skills
& capabilities that seriously impede effective
performance.
It is a constraint or an obstacle that checks
movement in certain direction, and may also
inhibit organization in gaining a distinctive
advantage. A weaknesses can be
1. Inferior skills or lack of expertise
2. Lack of intellectual capital.

Continue
3. deficiencies in physical, organizational or
intangible assets.
4. inferior capabilities in key functional areas
While a companys resource strengths
represent competitive assets, its resource
weaknesses represent competitive liabilities

Internal Organizational Analysis


1.
2.
3.
4.
5.
6.
7.
8.

Financial position
Product position
Marketing capability
R&D capability
Organizational structure
Human resources
Conditions of facilities & equipments
Past objectives & strategies

Strength

Weaknesses

Brand image

Weak distribution network


Narrow product lines
Rising costs
Poor marketing plan

High quality products


Latest technology
High intellectual capital
Cordial industrial relations

Opportunities

Threats

New market
Profitable new acquisitions
R&D skills in new areas
New businesses

Increase in competition
Barriers to carry
Change in consumer tastes
New or substitutes products
Threats of takeover

Critical assessment of SWOT analysis


i.
ii.
iii.
iv.
v.
vi.

Basic technique for analyzing


Act as a raw material for analyzing
Aid to strategic analysis
Summarizes key issues
Basis for judging future courses of action
Understand opportunities