Business Policy and Strategy Bba Study Notes

Business Policy and Strategy
Unit-I
Business Policy – Meaning – Features – Classification – Process of Policy –

Making objectives of business Policy.
Unit –II
Business strategy – Meaning – features importance – Strategic

Management Process -SWOT analysis - ETOP analysis – TOWS matrix- BCG
matrix.
Unit – III
Major business policies – Personnel policy - Production policy – Marketing

policy - Financial policy.
Unit – IV
Major business strategies – Stability growth – retrenchment –

disinvestment – mixed strategies.
Unit – V
Society and business – ethics – Social responsibilities of business – Social

audit.
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UNIT 1
Business
Business is the mainspring of the modern human life. It is the major economic activity in
any society. Each one of us, making some dealing in our day-to-day life with a number
of business concerns.
It includes activities concerned with production, trade, banking, insurance, finance,
agency, advertising, packaging, and other related activities.
What is important and what needs emphasis in the term ‘business’ is that the above
activities area being organized and carried on to satisfy the consumers needs.
Business Policy
The origin of business policy can be traced back to 1911, when the Harvard Business
School introduced an integrative course in management aimed at providing general
management capability.
Policy making is one of the most important components of business planning. It
provides guidelines as to how objectives of business are to be achieved.
The necessity of guiding the future direction of business arises at some stage in the
course of existence of every company.
Definition
According to Terry, “A business policy is an implied overall guide setting up boundaries
that supply the general limits and direction in which managerial action will take place”.
According to Knoontz,“ Policies define how the company will deal with stock holders,
employees, customers, suppliers, distributors and other important groups. Policies
narrow the range of individual discretion, so that employees act consistently on
important issues”.
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As defined by Christensen and Others, business policy is “the study of the function and
responsibilities of senior management, the crucial problems that affect success in the
total enterprise, and the decisions that determine the direction of the organization and
shape its future.”
Scope of Business Policy
No business organization can either survive or grow without definite objectives which
can only be accomplished by applying different policies from time to time, depending
upon the working conditions.
Business policies are actually the guidelines for organizational thinking, behavior and
action.
Policies as such are formulated pertaining to different aspects of business organizations
and therefore they enjoy a very wide scope in day-to-day life of any business unit.
Policies in general, have a wide scope as they are concerned with
 Aim and objectives of a business unit
 Organizational structure
 Financial resources available
 Regional traditions and social values
 Fiscal and commercial policy of the government
Need for Business Policies
It goes without saying that “business policy and administration” is part and parcel of
management.
No business enterprise can be managed, controlled and administered effectively if no
definite policies are determined.
In fact, it is the policy that guides the course of action
Policies are so framed as to attain the goal of the enterprise and the pre-determined
goal can be achieved only when actions are put into practice.
When the policies are to be implemented, every care should be taken by executives to
see that implementation of policies will have no adverse effects on workers as well as on
the management.
Hence, to see that policies are effective as well as fruitful, implementation has been
considered as an important aspect of management. The executives concerned with
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policy implementation should execute them in such a manner as would lead to

maximum return on total investment with minimum amount of discontentment among
people in the organization.
Features of Policy
From the above definitions, following features of a policy can be identified
 A policy provides guidelines to the members of the organization for deciding a
course of action. Policy provides and explains what a member should do rather
that what he is doing.
 Policy limits an area within a decision is to be made and assures that the decision
will be consistent with and contributive to objectives.
 Policies are generally expressed in qualitative or general way. The words most
often used in stating policies are to maintain, to continue, to follow, to provide,
to assist, to assure, to employ, to make, to produce or to be etc.
 Policy formulation is a function of all managers in the organization because some

form of guidelines for future course of action is required at every level.
 Policies serve an extremely useful purpose. They avoid confusion and provide
clear-cut guidelines at all levels to subordinates; and therefore, they enable the
business to carried on smoothly and often without break.
 They also lead to better and maximum utilization of resources, human, financial
and physical, by adhering to actions for conservation.
 Decision-making, planning and coordination of any business organization are

exclusively governed and controlled by “Business Policies”.
 Consistency in the work performance by different members of firm is maintained

because of clear-cut policies chalked out at executive level.
 Policies normally cover the study of the nature and process of choice about the
future of a business enterprise and are to be handled by responsible executives.
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Classifications
On the basis of levels of Management

Business policies are framed at different levels of the management, and accordingly
they may be classified as:
Top management policies : These policies are derived from the top management
planning. The top management comprise of the Board of directors, Chairman, Vice-
Chairman, Managing Director, General Manager, etc.
The top management policies are concerned with the long-range such as product
selection, diversification, acquisitions and mergers, extent and liability-sales forecasting,
etc.
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Middle level management policies: These policies are the out come of the deliberations
of the middle management consist of the deputy heads to the various sections and
functional departments.
They frame policies on employment and training, industrial relations, labour welfare and
social security etc. and these policies are known as middle management policies.
Lower level management policies: The lower level management people are men who
have direct supervision over the working force.
They chalk out policies for the assignment of the jobs to the best suited persons, the
provision of adequate tools, raw materials, training the workers, issuing of orders,
improving working conditions, etc.
On the basis of Functional Areas
Policies relating to various functional areas of the management are called functional
policies.
Production and Purchase policies : The policies for operational are related to the
production system, operational planning and control, and research and development.
The strategy adopted and affects the nature of product also the markets to be served
and the manner in which the markets are to be served.
Marketing Policies : Policies related to marketing have to be formulated and
implemented on the basis of the marketing mix i.e product, price, place and promotion.
The major issues and decisions related to these marketing mix factors.
The following are considered as major marketing policies.

 Product Policies
 Pricing Policies
 Promotion Policies
 Physical distribution Policies
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Financial Policies : This policies may be regarded as the most important business
policies, as the entire success or failure of a business unit depends upon these. Properly
framed financial policies result in prosperity and long survival, while faulty policies result
in the unit’s run.
The financial policies of an organization are related to the availability, usage and
management of funds. Financial policies have therefore to be determined is the areas
of
 Sources of Capital Policies
 Working Capital Policies
 Profit distribution Policies
 Depreciation allowances Policies
Personnel Policies: Personnel policies are the tools for the personnel department to
achieve the objectives of the organization. Personnel policy provides guidelines for a
wide variety of employment relationship in the organization.
The personal policy of the organization should have two types namely
 General Objective : The statement of general objective should express the
top management’s basic philosophy of human resources and reflect its deep
underlying convictions as to the importance of people in the organization.
 Specific objectives: The statement of specific objectives should refer to the

various activities of personnel administration connected with staffing,
training, developing, wage and salary benefits, employee records and
personnel research.
The major areas of the personnel policies are
 Recruitment and Selection Policy

 Training and Promotion Policy
 Remuneration and Benefit Policy
 Industrial relation Policy
On the basis of Expression

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Business policies may be either express or implied, which in turn may be oral or written.
Oral Policies : Oral policies are those, which are issued or stated by the word of mouth.
Such policies are generally adopted when an organization is small and face-to-face
communication is desired.
They are often not remembered for long and easily forgotten. Therefore, usually oral
policies are not in popular use.
Written Policies : Written policies are those, which are normally put in black and white
and stated in clear terms so that personal whom they are addressed to easily
understand them. For putting the policies in writing, much care to be taken.
Implied policies : These are the policies, which are implied from the code of conduct or
from the behavior of business employees; but they are expressed. They generally flow
from the philosophy of the business, its social values and even traditions.
For example, smoking and drinking may be prohibited not in writing but it is implied by
the conduct of the executives who refrain theses habits while on duty.
On the basis of nature of Origin
On the basis of nature of origin business policies can be classified in to three types.
They are as follows
Formulated Policy : A formulated policy is one, which is specified by the organization for
providing guidelines to its members. Most of the policies in private sector organizations
fall in this category as every organization formulate various policies on different aspects.
This policy may be broad giving general guidance for the action.
Appealed Policies : Sometimes, policies may not be clearly stated and the actions of
managers particularly at the higher levels provide guidelines for actions at lower levels.
In such a case, the action of a decision maker, consciously or unconsciously, depends on

his own guidelines. Moreover, in the absence of any specific guidelines, decision is
based on individual interpretation of the situation and consequent actions.
Imposed Policies : imposed policies arise from the influence of some outside agencies.
Such agencies may be government which provides policies for all public-sector
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organizations, parent organizations overseas in the case of multinational companies

operating in a country.
On the basis of scope of Organization
Business policies may also be categorized as basic policies, general policies and specific
policies.
Basic Policies : These policies are basis of the organization and are framed by the top
management. They spell out the approach of a company to its activities. For example,
marketing policy of a firm may be “consumer-oriented” as against “product-oriented”,
with the main purpose of competing with the products of competitors.
General policies : Such policies are generally more specific and apply to large segments
of organization. The middle level management, e.g., mainly frames them purchasing
policy to give first preference to local suppliers.
Specific or Departmental Policies : A departmental policy is specific in nature. The

foremen and supervisors formulate it. It applies to routine activities in the department.
On the basis of Management Functions
The management undertakes functions, viz., planning, organizing, actuating, and

controlling. Accordingly the policies may be planning policies, organizing policies,
actuating or directional policies and controlling policies.
Planning Policies : These policies are concerned with the path of action, which lead to
company activities and attainment of its objectives. Planning policies decide the
objectives to be achieved; the policies paths that should be followed to achieve the
objectives and how the objectives set are to be achieved through programs and process.
Organizing Policies : Organization is another management function, which is concerned

with the division or allocation of necessary competent activities to members of the
group so that through collective efforts, the objectives may be achieved.
Actuating Policies : The actuating policies, therefore include: providing effective

leadership; integrating people and task and convincing them to assist in the
achievement of the overall objectives; effective communication with the members; and
providing climate for the subordinates development and their motivation to work.
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Controlling policies: Controlling is the process of measuring actual result, comparing

with standard of performance, finding out deviations and taking corrective action when
necessary.
Controlling policies involve a series of activities; continuous observation and study of

periodic result of performance in order to identify potential problems; selection of the
best mode of control.
Importance of Business Policy

Business policy is important as a course in the management curriculum and as a
component of executive development programmes for middle-level managers who are
preparing to move up to the senior management level. To highlight the importance of
business policy, we shall consider four areas where this course proves to be beneficial.
 For learning the course
 For Understanding the business environment
 For understanding the business organization
 For personal development
For Learning the course
Business policy seeks to integrate the knowledge and experience gained in various
functional areas of management. It enables the learner to understand and make sense
of the complex interaction that takes place between different functional areas.
Business policy deals with the constrains and complexities of real-life business. In
contrast, the functional area courses are based on a structured, specialized and well
developed body of knowledge, resulting from a simplification of the complex overall
tasks and responsibilities of the management.
For Understanding the Business Environment
Regardless of the level of management of person belongs to, business policy helps to
create an understanding of how policies are formulated. This helps in creating an
appreciation of the complexities of the environment that the senior management faces
in policy formulation.
By gaining an understanding of the business environment, managers become more
respective to the ideas and suggestions of the management. Such an attitude on the
part of the management makes the task of policy implementation simpler.
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For Understanding the Organization

Business policy presents a basic framework for understanding strategic decision making
while a person is at the middle level of management. Such a framework, Combined with
the experience gained while working in a specialized functional area, enables a person
to make preparations for handling general management responsibilities. This benefits
the organization in a variety of ways.
For Personal Development
A study of business policy offers considerable scope for personal development. It is a
fact of organizational life that the different subunits within an organization have a
varying value and importance at different times.
It often happens that a company which has followed a production orientation as a
matter of policy gradually shifts emphasis to marketing, maybe due to increasing
competition.
The Purpose of Business policy
To integrate the knowledge gained in various functional areas of management
To adopt a generalist approach to problem-solving
To understand the complex inter-linkages operating within an organization through the
use of a system approach to decision-making and relating these to the change taking
place in the external environment.
Business Policy Process
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 Ascertaining the problem

 Policy formulation
 Dissemination of the policy
 Acceptance of the policy
 Explanation of the Policy
 Policy Implementation
 Policy Control
Ascertaining the Problem
The main object of generating the policy is to have smooth working in the business
organization. Hence, the task of formulating policies should be assigned only to those in
the management who are well versed and quite conversant with varied situations or
problems of the business concerned.
Policy Formulation
This is the next step to be taken by persons concerned with policy implementation. Any
policy that is to be framed should be quite suitable both to the management and to its
employees.
No policy can be successfully put into practice unless it is properly approved by the
company personnel.
Dissemination of the Policy
Dissemination indicates announcement or making the subject-matter known to others.

One of the basic elements of the policy is that whatever policy is framed it should be
made known to all within the organization so as to avoid any conflict between the
company management and its personnel.
Acceptance of the Policy
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When the policies are formulated, it is advisable to get the draft of the policy statement
approved by those who are supposed to apply it in the interest of the organization as a
whole management and personnel.
Once the basic principles on which the policies are designed and the rules and
regulations included in the proposed draft policy are thoroughly understood and
accepted.
Explanation of the Policy
If the policy is to be accepted at all levels of management, every attempt should be

made by policy-makers that the exact meaning, significance and purpose of policy are
explained in clear terms to the persons concerned.
The policy will have no opposition and an early approved if explained thoroughly, will
hold relevance to the business environment in which the business enterprise is expected
to operate.
Policy Implementation
This is last but one stage in the process of policy-making decisions. Implementation of
policy indicates putting it into practice as and when any problem or critical situation
arises.
Even otherwise, corporate operations are undertaken and are also the outcome of the
policy implementation.
Policy Control
This is a very important element of business policy which is likely to be implemented at
different levels on different occasion. The management in this regard should be careful
to see that the policy implementation takes place in conformity with the basic
principles, rules and regulations set by the policy makers.
How Policies Differ from Rules
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 Policies are in the form of guidance and not the order. Rules are positive
instructions or orders to do or not to do something
 Infringement of rules leads to specific penalties whereas no stipulated penalties
are imposed in case the policies are not strictly adhered to.
 In the case of policies, there is room for variation for their use; it is not so
regarding rules.
 Policies give birth to rules and rules support and augment the policies.
Characteristics of Business Policies
 Objectivity
 Relationship to other objectives
 Complementariness
 Stability and Flexibility
 Fairness and Honesty
 Being known, understood and accepted
 Policy in writing
 Simple and free from ambiguity
 Supplementary to other policies
 Ethical standards
Objectives of the Business Policy
It is thus essential that we should first state the objectives of business policy and only
then proceed further. The objectives of business policy have been stated by authors
such as Christensen et.al. and Steiner and others in terms of knowledge, skills and
attitudes. These objectives could be derived from the purpose of business policy.
In Terms of Knowledge
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 The learners of business policy have to understand the various concepts involved.
Many of these concepts like strategy, policies, plans and programmes are
encountered in the functional area courses too.
It is imperative to understand theses concepts specifically in the context of

business policy.
 A knowledge of the external and internal environment and how it affects the
functioning of an organization is vital to an understanding of business policy.
Through the tools of analysis and diagnosis a learner can understand the
environment in which a firm operates.
 Information about the environment helps in the determination of the mission,

objectives, and strategies of a firm. The learner appreciates the manner in which
strategy is formulated.
In Terms of Skills
 The attainment of knowledge should lead to the development of skills so as to be

able to apply that which has been learnt. Such an application can take place by
an analysis of case studies and their interpretation, and by an analysis of the
business events taking place around us.
 The study of business policy should enable a student to develop analytical ability
and use it to understand the situation in a given case of incident.
 Further, the study of business policy should lead to the skill of identifying the
factors relevant in decision-making. The analysis of the strengths and
weaknesses of an organization, the threads and opportunities present in the
environment, and the suggestion of appropriate strategies and policies from the
core content of general management decision-making.
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In Terms of Attitude
 The attainment of the knowledge and skill objectives should lead to the
inculcation of an appropriate attitude among the learners. The most important
attitude developed through this course is that of a generalist. The generalist
attitude enables the learners to approach and asses a situation from all possible
angles.
 By acing in a comprehensive manner, a generalist is able o function under

conditions of partial ignorance by using his or her judgment and intuition.
Typically, case studies provide only a glimpse of the overall situation and a case
analyst frequently faces the frustrating situation of working with less than the
required information.
UNIT 2
Business Strategy
The term ‘Strategy’ is derived from military, where it is taken to mean the process of
planning the movements of troops so as to outplay the enemy in the battlefield.
Originally, the term has been derived from Greek word ‘strategos’.
The word strategy, therefore means the art of general. In corporate planning, strategy
is the ‘grand design’, which an organization chooses in order to move to react towards
the set objectives by using its resources.
Meaning / Definitions
According to knootz O Donnel “ Strategies are general programme of action towards

the attainment of comprehensive objectives”.
According to Andrews, “Strategy is the pattern of objectives, purpose of goals and

major policies and plans for achieving these goals stated in such a way, so as to define
what business the company is in or is to be and the kind of company it is or is to be”.
According to James Brain Quinn,” the pattern of plan that integrates an organization’s
major goals, policies and action sequences into a cohesive whole”.
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Analysis of Definitions of Strategy
The analysis of various definitions of strategy presents the following points:
 Strategy is a central understanding of the strategic management process.

 Strategy is the determination of basic long-term goals and objectives of an
organization.
 Determining the course of action to attain the predetermined goals and
objectives.
 Allocating the necessary resources for implementing the course of action.
 Set of decision-making rules making a common thread.
Levels of Strategy
Corporate Level Strategy is an overarching plan of action covering the various functions
performed by different SBU’s. the plan deals with the objectives of the company,
allocation of resources and coordination of the SBU’s for optimal performance.
SBU Level Strategy is a comprehensive plan providing objectives for SBU’s, allocation of
resources among functional areas, and coordination between them for making an
optimal contribution to the achievement of corporate level objectives.
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Functional Strategy deals with a relatively restricted plan providing objectives for a
specific function, allocation of resources among different operations within that
functional area, and coordination between them for optimal contribution to the
achievement of SBU and corporate level objectives.
Features of Strategy
The definition of strategy provides its following features:
Strategy relates the firm to its environment, particularly the external environment in all
actions whether objective setting, or actions and resources required for its achievement.
 Strategy is the right combination of factors both external and internal. In relating
an organization to its environment, the management must also consider the
internal factors too, particularly its strengths and weakness to taken various
courses of action.
 Strategy is relative combination of actions. The combination is to meet a

particular condition, to solve certain problems, or to attain a desirable objective.
It may taken any form; for every situation varies and therefore requires a
somewhat different approach.
 Strategy may even involve contradictory action. Since strategic action depends
on environmental variables, a manager may take an action today and revise or
reverse his steps tomorrow depending on the situation.
 Strategy is forward looking. It has orientation towards the future. Strategic

action is required in a new situation. Nothing new requiring solutions can exist in
the past, and so strategy is relevant only to the feature.
Importance of Strategic Management
To Provide Guidelines : Strategic management provides guidelines to the employer

about the organization’s expectations from them. This would minimize conflict between
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job performance and job demands. Thus it provides incentive for employer and helps
the organization in achieving its objectives.
Developed field Study by Research : Strategic management was just based on case
studies, 30 years ago. But recently, there are methodological problems in research in
this field of study. More systematic knowledge in this area is available at present.
Therefore, it is worthwhile to study strategic management at present compared to the
past.
Probability for Better Performance : There is no clear research evidence that strategic
management leads to higher performance. But the majority of studies suggest that
there is a relationship between better performance and formal planning.
Improves Communication : Strategic management provides effective communication of

information from lower level managers to middle level managers and to top level
managers.
Improves Coordination : Strategic management improves coordination not only among

the functional areas of management, but also among individual projects.
Improve Allocation of Resources: Strategic planning helps in deciding upon most

feasible and viable projects and thereby improves the allocation of resources to the
viable projects.
Benefits of Strategic Management
 It helps organizations not only to respond to its relevant environment, but also to
initiate and influence its environment and thereby exert control over its destiny.
 It helps the organizations to achieve understanding and commitment from all

managers and employees.
 It helps for increased employee productivity, reduced resistance to change, clear

understanding of performance-reward relationship.
 It often brings order and discipline to a firm.
 It allows for identification, prioritization and exploitation of opportunities.
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 It provides an objective view of management problems.
 It represents a framework for improved control of activities.
 It minimizes the effects of adverse conditions and change.
Strategic Management Process
Strategic decision making is carried out through the process of strategic management.
The way strategic management is defined the different phases in the process of
strategic management, the elements that this process contains; and lastly, the model of
strategic management that we have adopted.
Phases in strategic Management
The strategic management as a process consists of different phases which are sequential
in nature. These four phases could be encapsulated as follows
 Establishing the hierarchy of strategic intent,

 Formulation of strategies
 Implementation of strategies and
 Performing strategic evaluation and control
The above four phases are considered as sequentially linked to each other and each
successive phase provides a feedback to the previous phases. The phases in strategies
management are depicted as following
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Each phase of the strategic management process consist of a number of elements which
are discrete and identifiable activities performed in logical and sequential steps.
Establishing the hierarchy of strategic intent:
 Creating and communicating a vision

 Designing a mission statement
 Defining the business
 Setting objectives
Formulation of strategies:
 Performing environmental appraisal

 Doing organizational appraisal
 Considering corporate-level strategies
 Considering business-level strategies
 Undertaking strategic analysis
 Exercising strategic choice
 Formulating strategies
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 Preparing a strategic plan
Implementation of Strategies
 Activating strategies
 Designing structures and system
 Managing behavioral implementation
 Managerial functional implementation
 Operational sing strategies
Performing strategies evaluation and control:
 Performing strategic evaluation

 Exercising strategic control
 Reformulating strategies
SWOT Analysis
SWOT is a short form for the internal strengths and weaknesses of a business and
environmental opportunities and threats facing that business. SWOT analysis is a
systematic identification of these factors and the strategy that reflects the best match
between them. It is based on the logic that an effective strategy maximizes a business’s
strengths and opportunities but at the same time minimizes its weaknesses and threats.
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Strengths: Strength is resource, skill, other advantage relative to competitors and the
needs of markets a firm serves or anticipates serving. It is a distinctive competence that
gives the firm a comparative advantage in the marketplace. Financial resources, image,
market leadership, and buyer/supplier relations are examples.
Weaknesses: A weaknesses is a limitation of deficiency in resources, skills and

capabilities that seriously impedes effective performance. Facilities, financial resources,
management capabilities, marketing skills and brand image could be source of
weaknesses.
Opportunities: An opportunity is a major favorable situation in the firm’s environment.

Key trends represent one source of opportunity. Identification of a previously
overlooked market segment, changes in competitive or regulatory circumstances,
technological changes, and improved buyer or supplier relationship could represent
opportunities for the firm.
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Threats: A threat is a major unfavorable situation in the firm’s environment. It is a key

impediment to the firm’s current and or desired future position. The entrance of a new
competitor, slow market growth, increased bargaining power of key buyers or suppliers,
major technological change, and changing regulations could represent major threats to
a firm’s future success.
ETOP Analysis
There are many techniques available to structure the environmental appraisal. One
such technique, suggested by Glueck is that of preparing an Environmental Thread and
Opportunity Profile (ETOP) for an organization.
The preparation of ETOP involves dividing the environment into different sectors and
then analyzing the impact of each sector on the organization.
A comprehensive ETOP requires subdividing each environmental sector into sub-factors

and then the impact of each sub-factor on the organization described in the form of a
statement.
The following summary shows the major factors of ETOP. The summary provides an
example of an ETOP prepared for an established company in the bicycle industry.
The main business of the company is in sports cycle manufacturing for the domestic and
export market.
This example relates to a hypothetical company but the illustration is realistically based
on the current Indian business environment.
Environmental Nature of Impact of each sector

Sectors Impact
Social ↑ Customer preference for sport cycles which are
fashionable, easy to ride and durable
Political → No significance factor

Economic ↑ Growing affluence among urban consumers;
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experts potential high

Regulatory ↑ Bicycle industry a thrust area for
Export
Market ↑ Industry growth rate is 7 to 8 percent per year;
for sport cycle growth rate is 30 percent; largely
unsaturated demand
Supplier ↑ Mostly ancillaries and associated companies
supply parts and components; import of RAW
material easily available.
Technological ↑ Technological up gradation of industry in
progress; import of machinery simple.
International ↓ Emerging threat from cheap imports from china
Up arrows indicate favorable impact; down arrows indicate un-favorable impact and
horizontal arrows indicate natural impact.
As observed from the above summary, sport cycle manufacturing is an attractive

proposition due to the many opportunities operating in the environment.
The company can capitalize on the growing demand by taking advantage of the various
government policies and concession.
It can also take advantage of high export potential that already exist. Since the company
is an established manufacturer of bicycle, it has a favorable supplier, as well as
technological environment.
But contrast the implications of this ETOP for a new manufacturer who is planning to
enter this industry.
Though the market environment would still be favorable, much would depends on the
extent to which the company is able to ensure the supply of raw materials and
components, and have access to the latest technology and possess the facilities to use
it.
The preparation of an ETOP provides a clear picture to the strategists. By means of an

ETOP, the organization knows where it stands with respect to its environment.
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Obviously, such an understanding can be of a great help to an organization in

formulating appropriate strategies to take advantage of the opportunities and counter
the threats in its environment.
Corporate level strategic analysis
Corporate-level strategic analysis treats a corporate entity as constituting a portfolio of

business under a corporate umbrella. The analysis focuses on the question of what
should a corporate entity do regarding the several business that are there in its
portfolio.
Corporate Portfolio Analysis
Corporate portfolio analysis could be a set of techniques that helps strategists in taking
strategic decisions with regard to individual products or business in a firm’s portfolio. It
is primarily used for competitive analysis and corporate strategic planning in
multiproduct and multi-business firms.
BCG Matrix : The Boston Consulting Group (BCG) matrix, such as the one shown in the
following is provides a graphic representation for an organization to examine the
different business in its portfolio on the basis of their relative market shares and
industry growth rates.
As shown in the table, business could be classified on the BCG matrix as wither low or
high according to their industry growth rate and relative market share.
The vertical axis denotes the rate of growth in sales in percentage for a particular
industry.
The horizontal axis represents the relative market share, which is the ratio of a
company’s sales to the sales of industry’s largest competitor or market leader.
The low and high market shares are separated by a vertical lines set at 1.0. The means
that a company would have a relative market share of less than 1.0 if it does not have
the largest share.
A relative market share of more than 1.0 would occur for companies that are the largest
sellers in their various industries. Still, in order to get the maximum benefit out of the
experience curve, the BCG matrix indicates that it is necessary to be the market leader.
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The result of combining the industry growth rate and relative market share, each along
a high and low dimension, is a four-cell matrix. Each cell of this matrix has been given
an interesting and appropriate name by the Boston Consulting Group.
The four cells of the BCG matrix have been termed as stars, cash cows, question marks
and dogs. Each of these cells represents a particular type of business.
These different types of businesses with some contemporary examples from the Indian
corporate world, are described below
A Typical BCG Matrix
Stars : Stars are high-growth-high-market share businesses which may or may not be
self-sufficient in terms of cash flow. This cell corresponds closely to the growth phase of
the product life cycle(PLC). A company generally pursues an expansion strategy to
establish a strong competitive position with regard to a star business.
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Cash Cows : As the term indicates, cash cows are businesses which generate large
amounts of cash but their rate of growth is slow. In terms of PLC, these are generally
mature business which is reaping the benefits of the experience curve.
The cash generation exceeds the reinvestment that could profitable be made into ‘cash
cows’. These businesses can adopt mainly stability strategies.
Where long-term prospects are exceptionally bright, limited expansion could be

adopted.
As ‘cash cow’ industries lose their attractiveness and tend towards decline, a phased
retrenchment strategy may be feasible.
Question Marks: Businesses with high industry growth but low market shares for a
company are ‘question marks’. They require large amounts of cash to maintain or gain
market shares. ‘question marks’ are usually new products or services which have a good
commercial potential.
The logic of the experience curve dictates that the company obtaining an early lead can
expect cost advantages and market leadership and can successfully create entry
barriers.
No single set of strategies can be recommended here. If the company feels that it can
obtain a dominant market share, it may select expansion strategies, otherwise
retrenchment may be a more realistic alternative.
Dogs: The business which are related to slow-growth industries and where a company
has a low relative market share are termed as ‘dogs’.
They neither generate nor require large amount of cash. In terms of PLC, the ‘dogs’ are
usually products in late maturity or a declining stage.
The experience curve for the company shows that it faces cost disadvantages owing to a
low market share. The only possibility for the company could be to gain market share at
the expense of rival firms, a possibility that is remote owing to the high cost involved.
So retrenchment strategies are normally suggested.
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TOWS analysis helps you get a better understanding of the strategic choices that you face.
(Remember that "strategy" is the art of determining how you'll "win" in business and life.) It
helps you ask, and answer, the following questions: How do you:
 Make the most of your strengths?

 Circumvent your weaknesses?
 Capitalize on your opportunities? and
 Manage your threats?
A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you
think about the options that you could pursue. To do this you match external opportunities and
threats with your internal strengths and weaknesses, as illustrated in the matrix below:
TOWS Strategic Alternatives Matrix
External External Threats

Opportunities (T)
(O) 1.
1. 2.
2. 3.
3. 4.
4.
Internal Strengths SO ST
(S) "Maxi-Maxi" Strategy "Maxi-Mini" Strategy
1.
2. Strategies that use Strategies that use
3. strengths to maximize strengths to
4. opportunities. minimize threats.
Internal WO WT
Weaknesses (W) "Mini-Maxi" Strategy "Mini-Mini" Strategy
1. Strategies that
2. minimize weaknesses Strategies that
3. by taking advantage minimize weaknesses
4. of opportunities. and avoid threats.
This helps you identify strategic alternatives that address the following additional questions:
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 Strengths and Opportunities (SO) - How can you use your strengths to take advantage of
the opportunities?
 Strengths and Threats (ST) - How can you take advantage of your strengths to avoid real
and potential threats?
 Weaknesses and Opportunities (WO) - How can you use your opportunities to overcome
the weaknesses you are experiencing?
 Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoid
threats?
UNIT 3
Major Business policies
Personnel Policy
Personnel policies are the tools for the personnel department to achieve the objectives
of the organization. Personnel policy provides guidelines for a wide variety of
employment relationship in the organization. The personal policy of the organization
should have two types namely
 General Objective : The statement of general objective should express the
top management’s basic philosophy of human resources and reflect its deep
underlying convictions as to the importance of people in the organization.
 Specific objectives: The statement of specific objectives should refer to the

various activities of personnel administration connected with staffing,
training, developing, wage and salary benefits, employee records and
personnel research.
Key issues in personnel policy : The close interrelation between the quality of personnel
and strategic management requires the top executives to be concerned with the
following major policy issues bearing on personnel.
 Recruitment, promotion and transfer.

 Compensation and supplementary benefits.
 Relation with employee unions
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 Collective bargaining.
Finally, policy decisions have to be taken in connection with personnel administration,

and these relate to personnel selection, training and promotion, remuneration and
benefits and industrial relations.
Recruitment and Selection Policy : Policy decisions have to be taken as to how

personnel is to be selected in terms of the procedure to be used. i.e, the extent of
interviews requires, psychological resting to be introduced and the source of
recruitment.
Policy decisions may also be taken with regard to the minimum educational or
experience requirements.
Training and Promotion Policy : The question of manpower development or training is

also an important aspect and policy decisions have to be taken with regard to
manpower planning and filling up higher vacancies by promotion from within.
A policy of promotion from within presupposes the existence of adequate training

policies to develop persons for such higher position.
Remuneration and Benefit Policy : Policy decisions have also to be taken in terms of the
remuneration structure. For example, in case of the sales force, certain organizations
prefer to rely merely on salaries whereas other which to build in a commission
component to provide the necessary incentive.
The question of the extent of bonus, apart from legal requirements in India has also to
be decided. Policy decisions will also be taken regarding other benefits such as sick
leave, vacations, canteen facilities and working conditions.
Industrial Relations Policy : Finally, in the light of increasing strikes in India, proper
policy decisions must be taken in connection with dealing with labour disputes and
avoiding them in the future.
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Production and Purchase Policy
The policies for operational are related to the production system, operational planning
and control, and research and development. The strategy adopted and affects the
nature of product also the markets to be served and the manner in which the markets
are to be served.
All these collectively influence the operations system structure and objective, which are
used to determine the operations and policies. Purchase and production policies like
other business policies generate a number of intricate problems.
A satisfactory handling of these problems is essential if the business is to keep on its

toes. Major production and purchase policies involve the following issues;
 Selection of the production process
 Determining the total production capacity
 Deciding about the extent of vertical interpretation
 Establishing plans for maintenance and replacement
 Solving manufacturing or buying problems of supply and services;
 Considering how the purchasing functions should be organized and performed
Key issues in production policy : The major issues in production policy may be said to
include the following
 Involvement of the firm in production processes.
 Choice of the production processes in includes technology to be used, division of
labour, mechanization of operations and size and location of plants
 Estimate of the production capacity
 Maintenance of replacement of the existing production facilities
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Production policy decisions will have to be taken in connection with the size of the run,
automation, production stabilization, extent of marketing or buying components and
inventory levels.
The Size of the Run Policy : This will depend on the backing and orders as well as the
nature of automation introduced. It will also depend on the type of the market.
The temptation is to increase the size of the run to take advantage of avoiding the set
up costs. However, these have to be weighted against the cost of heavier inventories.
Automation Policy : Policy decision at the top level may have to be taken on the
question of automation. The modern trend is towards greater automation but this has
to be tempered by social objectives of avoiding increasing unemployment in India.
Again automation involves consideration of technical problems apart from economic

aspects.
The policy of increasing automation or mechanization may be merely with a view to
avoid repetitive and uninteresting work or it may be to reduce costs. Policy decisions
however, have to be taken in this behalf at the top-level.
Production Stabilization Policy : The question of production stabilization is related to
the size of the run and the extent of automation production has to be stabilized through
proper timing, as market demands cannot be overlooked.
In view of seasonality of demands, where they exist production stabilization is sought to
be achieved by manufacturing other products instead of leaving production facilities
idle.
In service industries, like our railways this is a problem where trains have to be run off-
season when they are partially empty. Policy decisions therefore have to be taken in
this behalf.
Make or Buy Policy : Make or buy decision is related to both the question of marketing
policy as well as production policy. Policy decisions have to be taken as to the extent of
the product that has to be manufactured within the organization itself and the extent, if
any of purchases from outside.
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For example in the automobile industry there are many small-scale industries providing
component parts for the motorcar. Such a policy decisions might be arrived at in the
light of financial considerations or because of government control or directions, or in
terms of social obligations of large business.
Inventory Level Policy : Finally, the questions of the levels of inventories or stocks that
can be maintained have to be decided. The size of the run, product stabilization and the
other policies discussed above are related to the question of inventory level of policies
in connection with stocks.
This is also related to the aspect of marketing as being out of stock may result in losing
customers. As against this, higher inventories increase the costs and reduce the
ultimate profits.
Disposing off heavy stocks may require price slashing or reductions resulting in wastage
of financial resources.
Marketing Policy :
Policies related to marketing have to be formulated and implemented on the basis of
the marketing mix i.e product, price, place and promotion. The major issues and
decisions related to these marketing mix factors.
In the marketing policy decisions, each firm is naturally expected to use the set of
decision, variables best suited to its own strategy. But there are certain basic issues,
which are common concern to most of firms.
The more important issues in marketing with respect to which guidelines need to be
provided are; product line and product mix, customers to be served and channels of
distribution, pricing of products and services, sales, promotion and marketing mix.
Basically marketing policies relate to each of the ‘four P’s in marketing’ namely product,
pricing, promotion and physical distribution.
Product Polices: In connection with product policies, for example a policy decision might
have to taken as to whether to make or buy the product. Policy decisions might have to
be laid down with regard to the nature and extent of diversification.
For example whether diversification in the future will always be in terms of related
products or whether new product ideas can be considered in connection with unrelated
products.
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The make or buy decision can also be a part of the production policy but can be part of
the marketing strategy which is concerned with the overall strategy of the business.
Pricing Policies: Similarly in the area of pricing policy decisions have to be taken. The
market segment or segments aimed at will determine the price range.
The policy decisions on pricing are also affected by the type of trade channels and the
discounts that might have to be offered.
Pricing policies also depend on the objectives involved which may be to skim the cream.
i.e, benefit quickly in case of novelty product by charging a high price, or the policy may
be rapid market penetration by keeping the price as low as possible.
Promotion Policies: The promotional policy is also tied in with the pricing policies. The
policy to concentrate on certain advertising media would be dictated in terms of
product policies and the customer segment involved.
Policy decisions would also help in arriving at the amount to be spend on promotional
activities. Certain organizations fix a policy of budgeting a certain percentage, say 5
percent, of the sales for advertising expenditure.
Physical Distribution Policies : Finally, policy decisions have to be taken in the area of
physical distribution of the product which involved considerations of channels of
distribution and logistics i.e, questions of warehousing points and inventory levels.
Difficult policy decisions are involved in arriving at the selection of an appropriate set of
distribution channels for the products of the company. Once established such decisions
are difficult to change. Certain organizations prefer to give sole distributorships.
Financial Policy :
This policies may be regarded as the most important business policies, as the entire
success or failure of a business unit depends upon these. Properly framed financial
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policies result in prosperity and long survival, while faulty policies result in the unit’s
run.
The financial policies of an organization are related to the availability, usage and
management of funds. Financial policies have therefore to be determined is the areas
of
 Sources of Capital Policies
 Working Capital Policies
 Profit distribution Policies
 Depreciation allowances Policies
Source of Capital Policy: Policy dimensions are taken at the top level regarding the
sources of capital. For example, in the case of the sole trader, the individual proprietor
generally provides the capital, which is supplemented by loans, which he may be able to
obtain from banks and other financial institutions.
In the case of partnership, the partners provide the basic capital. In case of joint stock
companies, large capital is possible from a large number of shareholders. In addition,
loans are generated through the issued of debentures. The question of the debt/equity
ratio is a policy decision, which must be taken.
Working Capital Policy: The difference between the current assts and the current
liabilities or the working capital determines how far the business unit can immediately
meet its obligations. It constitutes the ability of the organization to meet its bills when
they fall due.
Policy decisions will have to be taken with regard to how for such current assets should
be held in cash or in other readily marketable securities or placed in fixed deposit to
earn interest.
These policies are also concerned with the extent of bank borrowings permissible and
allowances credit facilities that should be extended to the customers.
Profit Distribution Policy : Policy decisions have to be taken with regard to how much
profits should be distributed by way of dividends to the share holders and how much
should be ploughed back for future capital requirements.
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If adequate dividends are not distributed, when capital is required in the future it will be
difficult to attract investors as new shareholders or to induce existing shareholders to
take up more shares in the company.
Some companies follow a policy of dividend equalization by setting aside profits in good
years to be used for payment of dividend in lean years.
Depreciation Allowance Policy: Policy decisions have to be taken on the question of
extent of depreciation to be written off while keeping in mind the tax providing as well
as its possible use as source of funds for the enterprise.
UNIT 4
Major Business Strategies
Strategy refers to the manner of using resources to provide superior results. In

operational terms, strategy is a comprehensive, integrated plan designed to assure that
the basic objectives of the enterprise are accomplished.
Strategic planning or strategy formulation consists of a set of decisions, which leads to

the development of an effective strategy. Strategy formulation presupposes
environmental analysis and evaluation of internal capabilities.
Therefore, strategic planning is forward-looking exercise, which determines the future

posture of the enterprise with special reference to its product, market posture,
profitability, size, and rate of innovation and external institutions.
Dimension of Strategic Decisions
What decisions facing a business are strategic and therefore deserve strategic
management attention? Typically, strategic issues have five identifiable dimensions:
Strategic issues require Top-management Decisions : Strategic decisions overarch

several areas of a firm’s operations. Top-management involvement in decision making
is imperative.
The perspective for understanding, anticipating broad implications, ramifications, and

the power to authorize the resources allocations are necessary for implementation.
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Strategic issues involve allocation of Company’s Resources : Strategic decisions

characteristically involve substantial resource deployment. The people, physical assets,
or money needed must be either redirected from internal sources or secured from
outside.
Strategic issues are future Oriented : Strategic decisions are based on what managers
anticipate or forecast rather than they know. In the turbulent and competitive free
enterprise environment, a successful firm must take anticipatory stance towards
change.
Strategic issue usually have multi-business consequences: A strategic decisions are

coordinative. Decisions about such factors as customer mix, competitive emphasis, or
organizational structure necessarily involve a number of a firm’s strategic business units
(SBU’s), functions, divisions, or program units.
Each of these areas will be affected by the allocation or reallocation of responsibilities

and resources related to the decision.
Strategic issue necessitate considering external environment: All business firms exist in
an open system and are influenced by external conditions largely beyond their control.
They must consider competitors, consumers, suppliers, creditors, government and

labor.
Stability Strategy
A stability strategy arise out of a basic recognition by management that the firm should
concentrate on utilizing its present resources to develop its competitive strength within
a restricted product-market configuration.
In other words, stability strategy implies that the company will continue in the sale or a
similar business as it now pursues, and with the same of similar objectives. The stable
strategy is desirable for a firm, which has a smooth sailing and where environment is not
excessively hostile.
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This type of strategy is followed by a firm when: there is no deviation from the existing
strategy; it goes on serving customers in similar product or service sectors as mentioned
in the business charter and; the environment is relatively stable or not much change is
expected in it.
The various sub-strategies of the stable strategy include the following
Incremental Growth Strategy : To start with a strategic move, many firms prefer to
adopt incremental growth as a strategy, concentrating on one product line at a time,
and growing slowly but surely with a strong base to move on.
The objective may be, for instance, to enter new market segments gradually. Nothing is
attempted by way of a big leap forward.
New moves are carefully tested in all respects. Such an incremental growth strategy
may succeed through effective market segmentation, reducing costs of
Profit Strategy: The profit strategy is also designated as ‘end-game’ strategy. When the
objectives of a firm are to generate cash immediately for itself profit strategies are
followed. If necessary, the firm forgoes its market share to generate the cash.
Stability as a Pause Strategy : Having achieved a high growth level, some firms may find
it difficult to maintain it and thus attempt to set a lower level of growth for the time
being until conditions are changing are more propitious. It may be called some sort of a
‘breathing spell’ strategy.
Sustainable growth strategy: This strategy is desirable when external conditions are not
favorable for pursuing a growth strategy due to resource constrains. Also there may be
other kinds of changes in external conditions when the executives may find growth
strategy no longer worthwhile.
Growth or Expansion Strategy
Expansion strategy is followed when an organization substantially broadens the scope of

its customer groups, customer functions, and alternative technologies in order to
improve its performance.
When a firm increases the level of objectives in terms of market share, sales revenue,
etc, new products are added to the existing line, or dissimilar products are taken up for
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production and sale, or business activities are expanded through acquisition, merger, or
amalgamation of firms.
In this sense, growth strategy differs from stability strategy in that the former implies
exponential growth while the latter implies an extrapolation of growth based on past
performance.
The growth strategy can be classified into two sub-category namely, internal growth
strategy and external growth strategy.
Internal Growth Strategy: In this strategy, the company will take all necessary effort to
grow its business with help of its own resources and effort.
There are two types of internal growth strategies namely, internal growth by increasing
sales of the single product or service line and internal growth by diversification.
In internal growth by increasing sales of the single product or service line, the firm
increases its level of objective achievement by increasing the sales and profit of its
present product or service line. This may be achieved in the following ways;
 By expanding sales through increasing primary demand and encouraging new

uses
 Expanding sales of product by adopting a different income groups
 Expanding sales by adopting a different pricing strategy
 Expanding sales to different market segments by producing goods/services,
which, cater to different purposes and personalities
External growth by Merger and Joint Ventures: An external growth strategy is one by
which a firm increases its level of objective achievement through mergers, joint
ventures and vertical integration.
Merger: A merger is that process by which two of more firms acquire the assets and
liabilities of the other in exchange of stock, or cash, or both. It can be two types namely,
concentric and conglomerate.
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A concentric merger is one in which two or more firms, which are related by the
production process, technology and markets combine.
A conglomerate merger involves the combination of two or more firms not closely
related by technology, production process or markets.
Joint Venture: It can take place between two or more firms of the same country or
between the firms operating in different countries. As they are formed with a different
purpose and have a different rate of success.
Vertical Integration: Vertical integration is a growth strategy characterized by entering

or leaving one or more stages in the process of the manufacture and distribution of
goods and services.
It may be backward integration or forward integration. Backward integration also

known as upstream development, it involves addition to activities to ensure the supply
of a firm’s present inputs.
It is aimed at moving lower on the production process scale so that the firm is able to
supply its own raw materials or basic components.
Retrenchment Strategy
Retrenchment strategy is followed when an organization substantially reduces the scope

of its customer groups, customer functions, or alternative technologies in order to
improve its performance.
Retrenchment involves total or partial withdrawal from a customer group, customer

function, or use of an alternative technology. Retrenchment strategies may be used on
the following circumstances;
 Poor performance
 Threat to survival
 Redeployment resources
 Insufficiency of resources
 To secure better management and improved efficiency
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There are different ways in which a company may defend its existence and survive, or
best serve the interest of owners in the face of internal or external crises.
The variants or sub strategies of retrenchment strategy are turnaround strategy,

divestment strategy, and liquidation strategy.
Turnaround Strategy: When an enterprise has been suffering from business losses for a
long period because of continued decline in sales, it takes recourse to turnaround
strategy to arrest and reverse the decline performance of the business.
This strategy aims at improving the efficiency of the firm by turning around its
resources. Reducing assets achieving cost reduction and increasing revenues can bring
this about.
There are certain conditions, which point out that a turnaround is needed. These
danger signs are; persistent negative cash flow; negative profits; declining market share;
deterioration in physical facilities; over-manning, high turnover of employees , and low
morale; uncompetitive products or services and mismanagement.
Divestment Strategy: In this approach the firm decides to close down a particular area
of business. Such an extreme step is taken when it is found that the particular unit or
division or area of business has been suffering loss for a long time and there is no
possibility of any improvement in the near future.
Divestment decision should be made carefully. Before taking a final divestment decision
it will be appropriate to prepare a profile of environmental opportunities, threats and
strategic advantages for each division.
A divestment strategy may be adopted due to various reasons;
 A project or business that proves to be unviable in the long-term

 Persistent negative cash flows from a business create financial problems for the
whole company, creating the need for divestment.
 Technological up-gradation is required if the business is to survive but where it is
not possible for the firm to invest in it.
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 Divestment may be done because by selling off a part of business the company
may be in a position to survive
Liquidation strategy: The liquidation strategy may be regarded as a strategy of last

resort. It involves selling off or closing down a firm to avoid bankruptcy and securing a
better deal for shareholders than running at a loss. Such a decision is taken under the
following circumstances:
 When the business condition of a firm is perilous and there is no hope of

recovering from the present crises.
 The managers may feel the business is at its peak but the future is uncertain and
the firm is unable to see any direction in which it can enter and operate. In such
a situation, they decide to get out of the present line of business.
 A firm may be suffering from a business crises and it may not have adequate
resources to get out of the present rut.
 When a firm has been faring very badly in the past few years and has
consequently suffered considerable losses and some other firm offers to buy it
for tax consideration or any other reason.
 Sometimes a firm may be offered a price higher than it real worth and the
management may be tempted to sell off the business.
Evaluation of Alternatives: After the above steps have been followed, the strategy
maker should consider the best one. Quite often only two alternatives are present i.e to
follow are not to follow.
In order to examine the best strategy the relative strength and weaknesses should be
evaluated with respect to technical feasibility. After analysis of all these factors only the
best strategy may be selected.
Selection of Strategy: The identification and evaluation of various alternatives will

narrow down the range of policies, which can seriously be considered for choice. Choice
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is deciding the acceptable alternative among the several which fits with the
organizational objective.
Normally at this stage, personal values and expectations of decision-maker play an

important role in strategy because he will decide the course of action depending on his
own likings and disliking.
This happens because in one way, the organizational objectives reflect the personal
philosophy of individuals particularly at the top management level.
Implementation: After the Strategy has been chosen, it is put to implementation, which
is it is put into action. Choice of Strategy is mostly analytical and conceptual while
implementation is operational or putting into action.
Various factors which are necessary for implementation are design of suitable
organization structure, developing and motivating people to take up work, designing
effective control and information system, allocation of resources etc.,
When these may produce results, which can be compared in the light of objectives set,
and control process comes into operation. If the results and objectives differ, a further
analysis is required to find out the reasons for the gap and taking suitable actions to
overcome the problems because of which the gap exists.
This may also require a change in strategy if there is a problem because of the
formulation inadequacy.
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The 7-S-Model
By Dagmar Recklies
The 7-S-Model is better known as McKinsey 7-S. This is because the two persons who
developed this model, Tom Peters and Robert Waterman, have been consultants at
McKinsey & Co at that time. Thy published their 7-S-Model in their article “Structure Is Not
Organization” (1980) and in their books “The Art of Japanese Management” (1981) and “In
Search of Excellence” (1982).
The model starts on the premise that an organization is not just Structure, but consists of
seven elements:
Structure
Strategy Systems
Shared
Values
Skills Style
Staff
www.themanager.org
Those seven elements are distinguished in so called hard S’s and soft S’s. The hard
elements (green circles) are feasible and easy to identify. They can be found in strategy
statements, corporate plans, organizational charts and other documentations.
The four soft S’s however, are hardly feasible. They are difficult to describe since
capabilities, values and elements of corporate culture are continuously developing and
changing. They are highly determined by the people at work in the organization. Therefore
it is much more difficult to plan or to influence the characteristics of the soft elements.
Although the soft factors are below the surface, they can have a great impact of the hard
Structures, Strategies and Systems of the organization.
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Description
The Hard S’s

Strategy Actions a company plans in response to or anticipation of
changes in its external environment.
Structure Basis for specialization and co-ordination influenced primarily by
strategy and by organization size and diversity.
Systems Formal and informal procedures that support the strategy and
structure. (Systems are more powerful than they are given
credit)
The Soft S’s
Style / Culture The culture of the organization, consisting of two components:
 Organizational Culture: the dominant values and beliefs, and

norms, which develop over time and become relatively enduring
features of organizational life.
 Management Style: more a matter of what managers do than

what they say; How do a company’s managers spend their time?
What are they focusing attention on? Symbolism – the creation
and maintenance (or sometimes deconstruction) of meaning is a
fundamental responsibility of managers.
Staff The people/human resource management – processes used to
develop managers, socialization processes, ways of shaping basic
values of management cadre, ways of introducing young recruits
to the company, ways of helping to manage the careers of
employees
Skills The distinctive competences – what the company does best,
ways of expanding or shifting competences
Shared Values / Guiding concepts, fundamental ideas around which a business is
Superordinate Goals built – must be simple, usually stated at abstract level, have
great meaning inside the organization even though outsiders
may not see or understand them.
Effective organizations achieve a fit between these seven elements. This criterion is the
origin of the other name of the model: Diagnostic Model for Organizational Effectiveness.
If one element changes then this will affect all the others. For example, a change in HR-
systems like internal career plans and management training will have an impact on
organizational culture (management style) and thus will affect structures, processes, and
finally characteristic competences of the organization.
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In change processes, many organizations focus their efforts on the hard S’s, Strategy,
Structure and Systems. They care less for the soft S’s, Skills, Staff, Style and Shared
Values. Peters and Waterman in “In Search of Excellence” commented however, that most
successful companies work hard at these soft S’s. The soft factors can make or break a
successful change process, since new structures and strategies are difficult to build upon
inappropriate cultures and values. These problems often come up in the dissatisfying results
of spectacular mega-mergers. The lack of success and synergies in such mergers is often
based in a clash of completely different cultures, values, and styles, which make it difficult
to establish effective common systems and structures.
The 7-S Model is a valuable tool to initiate change processes and to give them direction. A
helpful application is to determine the current state of each element and to compare this
with the ideal state. Based in this it is possible to develop action plans to achieve the
intended state.
UNIT 5
Society and Business
Business is an integral part of the social system; and it influences other elements of
society, which in turn affect business. The type of products to be manufactured and
marketed, the marketing strategies to be employed, the way the business should be
organized, are influenced by society.
The social system also on the other hand, is influenced by the way the business
functions, innovations, transmission on diffusion of information and new ideas may
affect society.
Thus business activities have greatly influenced by social attitudes, values, outlooks,
customs, traits, etc. Responsibility of business towards society includes concern for
ecology; consumerism; rural development and new projects.
Business may or may not have direct or day-to-day interaction with these interest
groups. The well being of society is the well being of business.
Business Ethics
Business ethics is concerned with the relationship of business goals and techniques to
specific human needs. It studies the impact of acts on the good of the individual, the
firm, the business community and the society as a whole.
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In these words of Garrett, ‘business ethics is a study of moral rightness and wrongness
of the acts involved in the production, distribution and exchange of economic goods and
services’.
Need for Business Ethics
The need for business ethics, i.e, for a set of generally standards of personal conduct, is
evident throughout the world. The legislative representatives establish status and
administrative laws in critical areas of inter-personal conduct where the safety and
personal welfare on the people can be vitally affected by unethical practices, for
furthering ethical practices in business community and professional people, the concept
of Professional Codes or Codes of conduct have also assumed great importance. These
have been and developed by the trade associations concerned with the following
objectives.
 Publication of a Code of Ethics is likely to improve the confidence of customers,
clients, employees, etc., in the quality of service they may expect;
 Business codes govern the inter-relationships of the members. Business cannot
be carried on without trust in the ethical standards of vendors and suppliers,
financiers and government agencies.
 The interest of all those who deal with business the stock holders, employees,
customers, competitors, dealers and suppliers and the local community-need to
be protected from the unethical practices.
 The consumer’s right can be saved and served well only when there is some type
of moral binding on the business community
 Business today is confronted with various social issues, such as : people oriented
management ecology and environmental protection consumerism and the
energy being inter-related, need that business should feel some obligation for
meeting these issues.
Factors affecting business Ethics

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The business executive has to decide what is ethical or unethical. Many factors
influence this decision. There are as follows
Personal code of behavior of Individual: The personal Code of Behavior of the
individual is the result of the complex environment that influences one’s life.
The Ethical standards imposed: The ethical code imposed by the superior on the
subordinates also influences the morality of behavior. If the superior condones
unethical activities such as padding expense accounts, the subordinate is encouraged to
look upon this activity as on acceptable practice.
Policies of the company: Standards of behavior in an industry are often influenced
greatly by the dominant firms in that industry. Garrett puts this idea when he says” the
best protection is the example presented by the conduct of top management and the
atmosphere it creates, when leaders are scrupulous, the employees know what is
considered right.
When example is supported by explicit policy, the followers have a clear idea of how to
translate the example of leaders into action.
Role of Trade Associations in Business Ethics
Trade associations, which are voluntary organizations of businessmen formed to
promote their common interest, can play an important role to promote business ethics.
Trade associations can promote business ethics in the following ways
 Education and persuasion
 Code of Ethics
 Moral sanctions
Principles of Business Ethics
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There are certain principles of business ethics, which are may be stated as below
Human value grows with the increase in size of business to which it applies. Therefore,
the importance and dignity of human labor has not only to be accepted but also
practically applied to.
The purpose of all economic activity is to meet consumer needs and to contribute to the
well being of the community; for business is not an end in itself but is only a mean to
achieve an end.
Therefore, business has to contribute to man’s material happiness and to his mental,
moral and spiritual growth.
“Business must be held in trust legally and morally for the benefit of the people whom
the business wants to serve”.
Business must be just, efficient and dynamic. Modern business has manifold
responsibilities; and the task of management is to ‘reconcile and harmonize these
separate and sometimes conflicting responsibilities’.
The social role of business can best be assumed in an atmosphere of freedom into the
least possible restraint on healthy and open competition and absence of undesirable
restriction or interference from the government.
As such ‘concentration and monopoly have to watched and guarded and wherever
necessary dispersed.
Social Responsibility of Business
Business depends on society for existence, sustenance and encouragement.
Dependence on society is so complete that as long as the latter wants the former,
business has reason to exist. Being so much dependent, business has definite
responsibility towards society.
This is popularly known as social responsibility. Every decision the businessman takes
and every action he contemplates have social implications.
According to Raymond Bauer, “Social responsibility is seriously considering the impact of
the company’s actions on society”.
Social Responsibility Models
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There are two basic approaches to the concept of social responsibility. The first concept
on the micro level analysis, try to show individual companies how they can be more
socially responsive.
On the other hand, the macro level of analysis, assuming that the government, not
individual companies should establish a country’s social goals.
ACKERMAN’S MODEL: Ackerman described three phase through which companies
commonly tend to pass in developing a response to social issues.
In Phase – 1: At this state, no one asks the company to deal with it. The chief executive
officer merely acknowledges the problems by making a written or oral statement of the
company’s policy towards it.
In Phase – 2: the company hires staff specialists to study the problem and to suggest
ways of dealing with it. Company has limited itself to declaring its intentions and
formulating its plans.
Phase – 3 : The company integrates the policy into its ongoing operations.
Unfortunately, implementation often comes slowly and often not until the government
or public opinion forces the company to act.
Ackerman thus advices that, the management should act early in the life cycle of any
social issue in order to enjoy the largest amount of managerial discretion over the
outcome.
ORGANIZATIONAL PHASES OF ORGANIZATIONAL INVOLVEMENT
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LEVEL PHASE -1 PHASE -2 PHASE -3

Chief Executive Issue: Corporate Obtain knowledge. Obtain
obligation Add staff specialists organizational
Action: Write and commitment.
communicate policy Change
Outcome: Enriched performance
purpose, increased expectations.
awareness
Staff Specialists Issue: Technical Provide response
problems. from operating
Action: Design data units. Apply data
system and system to
interpret performance
environment. measurement.
Outcome: Technical
and infrastructural
groundwork.
Division Issue: Management
Management problem.
Action: Commit
resources and
modify
Outcome: Increased
responsiveness.
CARROLL’S FOUR-PART MODEL

Archie B. Carrol has promulgated the four-part model. The model suggests that
business firms are basically an economic activity; its primary responsibility is economic.
It mist produce the goods that society wants and must sell them at a profit. Legal
responsibilities are also basic.
Firms should operate within the law. In this model, ethical responsibilities refer to
behavior by the firm that is expected by society. The category of discretionary
responsibilities encompasses voluntary activities undertaken for the public good.
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Specific discretionary activities are not mandated by law nor demanded by public
opinion. However, more and more frequently business are expected to get involved in
these of activities.
Economic Legal Ethical Discretionary

Responsibilities Responsibilities Responsibilities Responsibilities
TOTAL SOCIAL RESPONSIBILITIES
Dimensions of Social Responsibilities
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Social Audit
Business unit has obligations to its employees, owners, buyers, government and
environment. The question now is how to assess the performance of a particular
business unit.
The answer is ‘social audit’. The social audit is an approach for monitoring, appraising
and measuring the social performance of business. Kreps may regarded as the founding
father of the idea.
He included among these measurements; employment, production, consumer effort
commanded, consumer funds absorbed, pay rolls and dividend and interest. The basic
purpose of a business is to maximize the financial return earned on its financial
investment plus the amount of social return on its social investment.
To make rational investment decisions in the social area it is necessary to know what the
social returns are, and if we are to assess them by the same measures as for financial
investment, these must be expressed in monetary terms.
A social audit is a systematic study and evaluation of an organization’s social
performance, as distinguished from its economic performance. It is concerned with the
possible influence on the social quality of life instead of the economic quality of life.
Social audit leads to a report on the social performance of a business unit. It is the
evaluation or assessment of a company’s performance against planned goals in the area
of social responsibility.
The internal and external bodies may carry out the assessment, different people have
interpreted the term social audit differently.
To some it means the public disclosure of a company’s social responsibility and to some
others social audit is a comprehensive evaluation of the way a company discharge all its
responsibilities to shareholders, customers, and employees and to the wider
community.
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Features of Social Audit

The nature of social audit can be made clearer if we bring out its salient features.
Social audit include any activity : Social audit include any activity which has a significant
social impact, such as activities affecting environmental quality, consumerism,
opportunities for women and other disadvantages people in society and similar others.
Difficult to audit : Social performance is difficult to audit because most of the results of
social activities occur beyond the company’s gate and the company has no means of
securing data on the result.
Even if data are available it is difficult to establish how of them have occurred due to
company’s actions.
Social audit use both qualitative and quantitative data: social audits use both
qualitative and quantitative data. The pressure to use quantitative approach is strong
because of objectivity.
Quantitative data are precise and convincing, but in the area of social philosophy and
human values it is misleading to report only in quantitative terms.
Assessing organizational commitments to society : Social audit determine only what an
organization is doing in social areas, not the amount of social good that results from
these activities. It is process audit rather than an audit for results.
Objectives of Social Audit
Because of the differing view about social audits, they have multiplied motives, which
include, increasing the wisdom of social programmes, improving public relations, and
enhancing the credibility of the business.
The particular issues are minority employment, pollution/environment, working
conditions, community relations and consumerism issues.
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The following are the objectives of the responsible company

 The extension, development and improvement of business and the building up of
its financial independence
 The payment of fair and regular dividends to the shareholders
 The payment of fair wages and bonus to the workers
 The reduction of price to the consumers
 To assist in promoting the amenities of the locality
Benefits of Social Audit

 The benefits of social audit are as follows;
 Social audit enables the company to take close look at itself and understand how
for the company has lived up to its social objectives.
 The social audit encourages greater concern for social performance throughout
the organization.
 Social audit provides data for comparing effectiveness of the different types of
programmes.
 Social audit provides cost data on social programmes so that management can
relate the data to budgets, available resources, company’s objectives and
projected benefits of programmes.
 Social audit provides information for effective response to external claimants that
make demand on the organization.
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Business Policy and Strategy

Business Policy and Strategy

Business Policy – Meaning – Features – Classification – Process of Policy –

Business strategy – Meaning – features importance – Strategic

Major business policies – Personnel policy - Production policy – Marketing

Major business strategies – Stability growth – retrenchment –

Society and business – ethics – Social responsibilities of business – Social

policy implementation should execute them in such a manner as would lead to

 Policy formulation is a function of all managers in the organization because some

 Decision-making, planning and coordination of any business organization are

 Consistency in the work performance by different members of firm is maintained

On the basis of levels of Management

The following are considered as major marketing policies.

 Specific objectives: The statement of specific objectives should refer to the

The major areas of the personnel policies are

 Recruitment and Selection Policy

On the basis of Expression

On the basis of nature of Origin

In such a case, the action of a decision maker, consciously or unconsciously, depends on

organizations, parent organizations overseas in the case of multinational companies

On the basis of scope of Organization

Specific or Departmental Policies : A departmental policy is specific in nature. The

On the basis of Management Functions

The management undertakes functions, viz., planning, organizing, actuating, and

Organizing Policies : Organization is another management function, which is concerned

Actuating Policies : The actuating policies, therefore include: providing effective

Controlling policies: Controlling is the process of measuring actual result, comparing

Controlling policies involve a series of activities; continuous observation and study of

Importance of Business Policy

For Understanding the Organization

Business Policy Process

 Ascertaining the problem

Ascertaining the Problem

Dissemination of the Policy

Dissemination indicates announcement or making the subject-matter known to others.

Acceptance of the Policy

Explanation of the Policy

If the policy is to be accepted at all levels of management, every attempt should be

How Policies Differ from Rules

Characteristics of Business Policies

Objectives of the Business Policy

It is imperative to understand theses concepts specifically in the context of

 Information about the environment helps in the determination of the mission,

 The attainment of knowledge should lead to the development of skills so as to be

 By acing in a comprehensive manner, a generalist is able o function under

According to knootz O Donnel “ Strategies are general programme of action towards

According to Andrews, “Strategy is the pattern of objectives, purpose of goals and

Analysis of Definitions of Strategy

The analysis of various definitions of strategy presents the following points:

 Strategy is a central understanding of the strategic management process.

The definition of strategy provides its following features:

 Strategy is relative combination of actions. The combination is to meet a

 Strategy is forward looking. It has orientation towards the future. Strategic

Importance of Strategic Management

To Provide Guidelines : Strategic management provides guidelines to the employer

Improves Communication : Strategic management provides effective communication of

Improves Coordination : Strategic management improves coordination not only among

Improve Allocation of Resources: Strategic planning helps in deciding upon most

Benefits of Strategic Management

 It helps the organizations to achieve understanding and commitment from all

 It helps for increased employee productivity, reduced resistance to change, clear

 It often brings order and discipline to a firm.

 It allows for identification, prioritization and exploitation of opportunities.