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Business Policy and Strategic

Management

• The guidelines developed by an organization to govern its actions. • Deals with acquisition of resources with which organizational goals can be achieved. • Define the limits within which decisions must be made. the significant issues affecting organizational success and the decisions affecting organization in long-run. • Permits the lower-level management to deal with the problems and issues without consulting top-level management every time for decisions. . • Defines the scope or boundaries within which decisions can be taken by the subordinates in an organization.What is Business Policy? • The study of the roles and responsibilities of top-level management.

• Simple. but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.Policy should be appropriate to the present organizational goal. If it is uncertain. • Stable. a policy must be comprehensive. .Policy must be uniform enough so that it can be efficiently followed by the subordinates. • Clear.Features of Effective Business Policy • Specific. • Reliable/Uniform.A policy should be simple and easily understood by all in the organization.Policy should be flexible in operation/application. There should be no misunderstandings in following the policy. It should avoid use of jargons and connotations. • Appropriate. This does not imply that a policy should be altered always.Policy must be unambiguous.In order to have a wide scope. • Inclusive/Comprehensive. then the implementation will become difficult.Policy should be specific/definite.Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance. • Flexible.

Average Cost or Others. Documentation • Accounting Policy . Training. Sell to Whom.Quality-Quantity.Valuation of inventory using FIFO. liabilities.Hiring-Firing. Promotions.Examples of Business Policies • HR Policy . Wages. Payment terms. Where to sell. Communication Methods • Procurement Policy .What to sell. Incentives & Bonus • Marketing Policy . Inventory-Delivery. Vendors. expenses and income . Timing of recognition of assets. Sell through Whom. Employee profile.

which achieves advantage for the organization through its optimal allocation of resources within a changing environment and to fulfill stakeholder expectations .What is Strategy? • A set of related actions that managers take to increase their company’s performance goals – result in high and sustained profitability and also in profit growth • The major goal of a company is to maximize the returns that shareholders get from holding shares in the company • The direction and scope of an organization.

Forming a strategic vision – Long term direction. a sense of purposeful action. iPod Implementation & executing the strategy Evaluating performances. 3. Crafting a strategy to achieve desired results : • • • • Macroeconomic analysis – example: impact of global oil prices Industry analysis . reviews and corrective action . 2. 5.What is Strategic Management? • The managerial process that focuses on identifying and building “Competitive Advantage” through • 1) creativity of individuals and/or groups • 2) effective implementation of the good ideas • Five major tasks of Strategic Management 1. labor trend Capabilities-based strategy formulation – example: machinery availability Dynamic capabilities & evolutionary thinking – example: Walkman vs. 4.example: robotic vs. Setting objectives – Converting the strategic vision into specific performance outcomes for the organization to achieve.

Levels of Strategic Management .

then ultimately the CEO is likely to be called to account by the shareholders. In consultation with other senior executives. other senior executives. The CEO is the principal general manager. It is their responsibility to ensure that the corporate and business strategies that the company pursues are consistent with maximizing profitability and profit growth. .Levels of Strategic Management (Cont’) • Corporate-level Managers • Consists of the chief executive officer (CEO). formulating and implementing strategies that span individual businesses. can be viewed as the agents of shareholders. Corporate-level managers. This role includes defining the goals of the organization. These individuals occupy the apex of decision making within the organization. and corporate staff. determining what businesses it should be in. allocating resources among the different businesses. and particularly the CEO. • Provide a link between the people who oversee the strategic development of a firm and those who own it (the shareholders). and providing leadership for the entire organization. If they are not. the role of corporate-level managers is to oversee the development of strategies for the whole organization.

business-level managers are concerned with strategies that are specific to a particular business. purchasing. finance. or the business-level manager. is the head of the division. production. Whereas corporate-level general managers are concerned with strategies that span individual businesses.Levels of Strategic Management (Cont’) • Business-level Managers • A business unit is a self-contained division (with its own functions. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses. for example. The principal general manager at the business level. and marketing departments) that provides a product or service for a particular market. .

product development. . functional managers nevertheless have a major strategic role: to develop functional strategies in their area that help fulfill the strategic objectives set by business. Thus. purchasing. and so on) that constitute a company or one of its divisions. Although they are not responsible for the overall performance of the organization.and corporate-level managers. whereas general managers oversee the operation of a whole company or division. a functional manager’s sphere of responsibility is generally confined to one organizational activity.Levels of Strategic Management (Cont’) • Functional-level Managers • Responsible for the specific business functions or operations (human resources. customer service.

• BUSINESS-LEVEL: To develop strategies for competing in the individual business areas. motor and transportation equipment. including lighting equipment. manufacturing managers are responsible for developing manufacturing strategies consistent with corporate objectives.and corporate-level managers to formulate realistic and attainable strategies. his concern is with building and managing the corporate portfolio of businesses to maximize corporate profitability. it is up to Immelt to develop strategies that span individual businesses. Moreover. and financial services. Indeed. Jeffrey Immelt. because they are closer to the customer than is the typical general manager.Example of Level of Strategic Management • GE as an example: • GE is active in a wide range of businesses. • CORPORATE-LEVEL: The main strategic responsibilities of its CEO. functional managers themselves may generate important ideas that subsequently become major strategies for the company. functional managers provide most of the information that makes it possible for business. An equally great responsibility for managers at the operational level is strategy implementation: the execution of corporate. known as business-level managers. industrial electronics. In other words.and business-level plans. deciding whether the firm should divest itself of any of its businesses. construction and engineering services. for instance. are setting overall strategic goals. . and determining whether it should acquire any new ones. They are pursuing robust business models and strategies that will contribute toward the maximization of GE’s long-run profitability • FUNCTIONAL-LEVEL: In GE’s aerospace business. medical systems. such as financial services. major appliances. The development of such strategies is the responsibility of the general managers in these different businesses. allocating resources among the different business areas.

the greater its competitive advantage will be.How do we know if the company has Competitive Advantage? • A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability and profit growth of other companies competing for the same set of customers. The higher its profitability relative to rivals. • A company has a sustained competitive advantage when its strategies enable it to maintain above-average profitability for a number of years. managers mix and match different strategies that will fit together to make the company unique or different from its rivals and be able to outperform them – it is also called Business Model . • To achieve competitive advantage.

enabling the company to gain a competitive advantage and achieve superior profitability and profit growth.What is Business Model? • Manager’s conception of how the set of strategies his company pursues should mesh together into a congruent whole. . • A kind of mental model of how the various strategies and capital investments made by a company should fit together to generate above-average profitability and profit growth.

for example. is based on the idea that costs can be lowered by replacing a full-service retail format with a self-service format and a wider selection of products sold in a large footprint store that contains minimal fixtures and fittings.Examples of Business Model • A business model encompasses the totality of how a company will • • • • • • • • Select its customers Define and differentiate its product offerings Create value for its customers Acquire and keep customers Produce goods or services Lower costs Deliver those goods and services to the market Organize activities within the company • Example: Discount stores such as Walmart. These savings are passed on to consumers in the form of lower prices. which in turn grow revenues and help the company to achieve further cost reductions from economies of scale. .

While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy formulation is basically done by middle level management.What are the differences between Policy and Strategy • The term “policy” should not be considered as synonymous to the term “strategy” 1. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy is concerned mostly with action. or what is not done. 5. A policy is what is. 3. . Policy is concerned with both thought and actions. 4. 2. While a strategy is the methodology used to achieve a target as prescribed by a policy. Policy formulation is responsibility of top level management. While strategy deals with strategic decisions.