BUSINESS POLICY AND STRATEGY

HOW DOES STRATEGIC ANALYSIS AT CORPORATE LEVEL DIFFER FROM STRATEGIC

ANALYSIS AT BUSINESS LEVEL UNIT?

A strategy is never an end but only a tool to aid an organization to achieve its mission. A strategy would
contain the nitty-gritty details to accomplish the mission. Developing a strategic vision, setting objectives,
crafting, implementing and monitoring a strategy to improve the society or environment is like planning
and embarking on a perilous quest for an elusive goal.

In a company's strategic making hierarchy, there is strategic analysis at the corporate level and the
business level. On some occasions, these two levels are combined. This is the case when the company is
likely to be engaged in a single line of business and strategic analysis will be done by the CEO and other
top executives, passed down to the functional level, then to operational level. I will go through some of
the various activities of corporate strategy and business strategy.

Corporate Strategy

Corporate strategy is a pattern of the company's strategic and financial objectives; the strategy brings
forth a sense of purpose and long term goals. Therefore, conjuring plans and policies for achieving these
goals. It also decides what businesses the company will be in.

Corporate strategy is important because it deals with the major issues of the organization's future. When
an organization develops a good corporate strategy, it will be beneficial to the stakeholders in the
organization. The stakeholders are; the shareholders (who own the company and receive dividends on
their shares), the management and employees (who receive added value through wages) and the
government (who receive added value through taxes).

RAMESH ARIVALAN, BSC (HONS) FINANCE NUI 1

Business Policy and Strategy

Corporate Members and Vision

The corporate level members consist of the board of directors, The CEO, the managing director (in some
companies) and other executive members. The main roles of the board of directors are to direct the
company, appoint a CEO or Managing Director, planning the organizations hierarchy, delegating power
and authority to run the company, monitoring the company's performance and taking corrective
adjustments when necessary. (Houlden 2000) They are also responsible for reviewing and approving
major strategic decisions. The relationship between all corporate level members are crucial as any sort of
conflict would affect decisions for the company.

Corporate strategic analysis would include developing a company's vision and mission statements, core
values and motto. A mission statement is a strategic vision of where we are going and why? A mission
statement would tell a company's business scope and purpose. Who we are, what we do, and why we
are here? (Thompson, Strickland Gamble 2005) Core values are the essentials and enduring tenets of an
organization the very small set of guiding principles that have a profound impact on how everyone in
the organization thinks and acts. A motto describes the character and intention of an organization.

Strategic Choices

The role of the CEO is to analyze the company's internal environment. He/She must formulate a strategy
for the future by analyzing the company's strengths to underline key success factors or sustain competitive
advantage and protect or improve the company's weaknesses. This strategy is then conveyed to the
business units and must be implemented by the business unit's managers. The CEO has the authority to
pass down instructions to other executive members and business units. He/She must also keep track of
the external environment which are the company's opportunities and threats. He/She Should also be
aware of the latest changes in market trends and conditions. (SWOT) The CEO can use a corporate
portfolio frame work or SWOT portfolio frame work to analyze the growth, stability and environmental
factors of the company's business units.

Ramesh Arivalan, BSc (Hons) Finance NUI 2

Business Policy and Strategy

Some competitive strategies the corporate members can take are forming alliances or partnerships with
other firms to increase skill levels, merger and acquisition to increase market share and extend the
business, vertical integration to extend the company's operating scope in the industry activity chain and
outsourcing to minimize cost. (Thompson, Strickland and Gamble 2005)

Diversification, Global Opportunities and Ethics

Corporate level strategy can include diversification in to related and unrelated business industries.
Diversifying into related business industries is important because it can help a company transfer its
competencies and capabilities, share resources to reduce cost and establish the brand name. Yamaha
corporation is a classic example of this, the business started with the music industry from producing top
quality music instrument to music lessons. The business has grown so much that they have utilized their
technological know-hows to penetrate the motorcycle market by producing excellent bikes.

They could transfer their competences and capabilities into another related business and be very good at
it. Diversifying into unrelated business industries can also be advantageous because it spreads the
business risk across completely different businesses and build shareholder value by choosing the best
business to diversify into and managing the all the business units well. Though, many companies would
rather go in to related businesses because the perks are more appealing for large organizations.
(Thompson, Strickland and Gamble 2005)

Corporate level members also must consider opportunities for the global market. Going global can be
beneficial for the company because of increased globalization, lower cost for labour and raw materials
and increased profits. Countries like China, Brazil and Indonesia have substantially low labour cost. By
analyzing foreign markets, companies can gain access to new avenues for industry growth, business
opportunities and maybe, avoid saturation in the local market.

Ramesh Arivalan, BSc (Hons) Finance NUI 3

Business Policy and Strategy

The corporate level members will look at the financial performance of each business unit and decide
whether to sustain and pump in more resources into a business unit thats doing well, or to abolish a
business unit that is under-performing financially. Besides all the competitive strategies, the corporate
board have a commitment to social responsibility and ethics. They must ensure that the business is ethical
in behavior. Social responsibility means their actions must be in the best interest of the stakeholders and
environment.

Business Strategy

Per Houlden, A business is an operating unit which sells a distinct set of products or services to an
identifiable group of customers and is in competition with a well-defined set of competitors. There may
be a single business unit that operates by itself. This is called a single business company. The corporate
and business levels are combined in roles. If the corporate level members decide to allocate their
resources into a few business units, they will be closely monitored by the board of directors under the
corporate umbrella.

The manager in-charge of the single business unit will have the stress of conforming to the strategic and
financial objectives set by the corporate members, closely monitoring functional strategies are well
carried out and watching rival companies closely. A business strategy should include a mission and
objectives of how to strengthen market position, increase market share and build on competitive
advantageous and capabilities in that industry Nowadays, many businesses are aiming to achieve this by
fierce advertising, increasing product-lines for niche markets, lowering labour and material cost and
improving customer service quality.

Investing in business technology is also important to keep up with the competition. Large electronic
companies like Sony, Samsung, Toshiba, and Sharp just to name a few, must always invest heavily in
research and development activities to improve technology to sustain a competitive edge against their
rivals.

Ramesh Arivalan, BSc (Hons) Finance NUI 4

Business Policy and Strategy

Five Basic Competitive Strategies

There are five basic competitive strategies the business level managers can take to carve out a position
in the marketplace for the company:

1) A low-cost provider strategy Being the low-cost leader to drive cost out of the business.
2) A broad differentiation strategy Differentiating the product or services to a broad spectrum
of consumers.
3) A best-cost provider strategy Giving value to consumers by offering good to excellent
products and services at lower cost than rivals.
4) A niche market strategy based on lower cost Providing products or services to a narrow
buyer segment at a lower cost than rivals.
5) A niche market strategy based on differentiation Providing products or services to a narrow
buyer segment that meets their taste and
requirements better than rivals.

Each strategy is targeted at different positions in the market, offering products and services to different
segments of buyers with focused or specialized needs and wants.

Industry Value Chain

In a business unit value chain, there are five primary activities which are supported by another four
activities. They are:

Primary Activities 1st Supply Chain Management: Handling of raw materials and warehousing.

2nd Operations: Machining, assembling and testing.

3rd Distribution: Distribution of finished product.

4th Sales and marketing: Advertising, promotion, pricing and channel relations

5th Service: Installation and maintenance

Ramesh Arivalan, BSc (Hons) Finance NUI 5

Business Policy and Strategy

Support Activities 1) Firm Infrastructure: General management, accounting, finance and

strategic planning.

2)Human resource management: Recruiting, training and development

3)Technology development: R & D product and process improvement

4)Procurement: purchasing of raw materials, machines and supplies.

One of the important roles of the manager in-charge of the business unit is to ensure that all value chain
activities operate smoothly. As it is obvious that all the value chain activities take up the company's cost,
the manager must control the cost of all the activities to maintain a desirable profit margin set by the
corporate management. From the activities in the value chain, competencies and capabilities will
gradually emerge. The manager must take note and build up on the competency till it rises to a
sustainable competitive advantage. This strategy is an internal force which is within the control of the
manager.

Porter's Five Forces

Macro-environmental forces are uncontrollable, though the changes in the environment should be
monitored by the manager to react in accordance. The main force in the macro-environmental five forces
model of Michael Porter is the rival competitors. The manager must be able to identify the company's
competitors in the industry. So, to define the business's key competitors the manager must ask himself
the following questions:

1) Exactly what business are we in?

2) How far are we able to compete and how far are our competitors likely to compete?
3) Are there likely to be changes in the competitive environment in the future?
4) Which companies are likely to be our competitors?
5) Which competitors are winning present?
6) Are there competitors threatening to win in the future?

Ramesh Arivalan, BSc (Hons) Finance NUI 6

Business Policy and Strategy

Besides the threat of rival competitors, looking at the remaining four forces that surround the competitive
environment are a good tool for strategic analysis.

Firms in other industries offering substitute products

Buyers who have bargaining power and buyer-seller collaboration
Suppliers who have bargaining power and supplier-seller collaboration
Pressures from potential new entrants

The forces that surround the business are forces that will never stay the same and constantly needs to be
monitored by the manager. This will paint a clearer picture for the manager to craft a strategy by using
the company's strengths and analyzing the macro-environmental conditions. The strategy must also be in
tuned with the objectives of the corporate level members.

Business Model

Deciding on the business model is also an important factor in business strategic analysis. Here are some
questions on what the manager can answer to come up with a strategic business model:

How it will select its customers

How it defines and differentiates its product offerings
How it creates utility for its customers
How it acquires and keeps customers
How it goes to the market (promotion strategy and distribution strategy)
How it defines the task to be performed
How it configures its resources
How it captures profits

Ramesh Arivalan, BSc (Hons) Finance NUI 7

Business Policy and Strategy

If the manager can deal with all the questions asked, he/she should be able to craft a strategic business
model and convince the board that the strategy is inclined with the overall objectives of the company.

Per Gary Hamel's conclusion, too often corporate strategy is just an aggregation of business unit
strategies. The difference between corporate strategy and business strategy is a stapler. (Koch 1999) In
my opinion after comparison, Corporate and business strategic analysis have the same goals in mind for
the company, and that is to establish the company on a whole and reap healthy financial profits. Corporate
strategy is more difficult to craft than business strategy because corporate strategic analysis is always on
a larger scope and focuses 5 years ahead in the future while business strategic analysis focuses on
probably 2-3 years in the future. Corporate strategic analysis is the overall strategy of the organization
and decisions made at corporate level come with a bigger risk because of investments choices and
selecting the right industry to be in.

Business strategic analysis involves more of improvising on the core competence of the organization,
building capabilities in the value chain and building internal organizational strengths. Besides making sure
that customers are happy, the manager of the business unit must employ the right people to fit in the
culture and run the management team of the business unit. Most importantly, the manager needs to
tailor the organizations structure and culture to fit the overall strategy and direction of the organization.

Ramesh Arivalan, BSc (Hons) Finance NUI 8

Business Policy and Strategy

REFERENCES

Hewlett Foundation's Approach to Philanthropy, August 2005

(www.hewlett.org)

The CEO Refresher 2000

(www.refresher.com/!corevalues.html)

Yamaha Global Gateway 2005

(www.yamaha.global.com/)

Arthur A. Thompson, A J, Strickland and John E. Gamble (2005)

14th edition Crafting and Executing Strategy, McGraw-Hill International Edition, New York

Brian Houlden (2000)

Devising Company Strategy, Blackwell, UK

Peter Wright, Mark J. Kroll, John A. Parnell (1998)

Strategic Management Forth Edition, Prentice Hall Inc, New Jersey

Richard Koch (1999)

Smart Things to Know About Strategy, Capstone Publishing Limited, USA

Richard Lynch (1997)

Corporate Strategy, Pitman Publishing, London

Ramesh Arivalan, BSc (Hons) Finance NUI 9