Bbs307 Notes - E-Learning Materials

UNIVERSITY OF NAIROBI
COLLEGE OF EDUCATION & EXTERNAL STUDIES

SCHOOL OF OPEN LEARNING
DEPARTMENT OF BUSINESS STUDIES
BUSINESS POLICY & STRATEGIC MANAGEMENT

BBS307: LECTURE NOTES
DOREEN N. INYO E-Mail: nanyama@uonbi.ac.ke

Office: 16th fl. UoN Towers
Cell Phone: +254 724 485 028 or +254 786 115 090
Tuesday, April 14, 2020

University of Nairobi, Open, Distance and e-Learning (ODeL) Doreen Inyo - 0724485028
TABLE OF CONTENT
COURSE OUTLINE ................................................................................................................................... 2
Course Purpose...................................................................................................................................... 2
Expected Learning Outcomes .............................................................................................................. 2
Course Content....................................................................................................................................... 2
Mode of Delivery..................................................................................................................................... 3
Course Evaluation .................................................................................................................................. 3
Core Reading Materials......................................................................................................................... 3
TOPIC ONE: INTRODUCTION TO STRATEGIC MANAGEMENT ................................................... 4
Learning Outcomes................................................................................................................................ 4
What is Strategic Management? .......................................................................................................... 4
Importance of Strategic Management ................................................................................................. 5
What is a Strategy? ................................................................................................................................ 5
Strategic Management Process ........................................................................................................... 7
Strategic Management in Different Context ....................................................................................... 8
Principal Actors in Strategic Management ......................................................................................... 9
Discussion Questions .......................................................................................................................... 10
TOPIC TWO: SCANNING THE ENVIRONMENT: Situational Analysis ...................................... 11
Learning Outcomes.............................................................................................................................. 11
What is Situational Analysis? ............................................................................................................. 11
Industry Analysis .................................................................................................................................. 13
SWOT Analysis..................................................................................................................................... 15
TOPIC THREE: INTERNAL ENVIRONMENT: Organizational Analysis ..................................... 17
What is organizational Analysis? ....................................................................................................... 17
Core Resources and Capabilities ...................................................................................................... 17
Evaluating Capabilities ........................................................................................................................ 18
Basic Organizational Structures......................................................................................................... 19
Corporate Culture ................................................................................................................................. 21
TOPIC FOUR: STRATEGY FORMULATION ..................................................................................... 23
Types of Strategies .............................................................................................................................. 26
Portfolio Analysis .................................................................................................................................. 28
What is strategy implementation?...................................................................................................... 31
Leadership in strategy implementation ............................................................................................. 32
TOPIC SIX: STRATEGY EVALUATION & CONTROL ..................................................................... 34
Evaluation and Control Process......................................................................................................... 34
Types of controls .................................................................................................................................. 35
BBS307 Notes Tuesday, April 14, 2020 Page 1 of 35

COURSE OUTLINE
Course Purpose
The purpose of the unit is to equip the learner with necessary knowledge and skills to
enable him/her to effectively utilize organization’s assets. The course will also enable the
learner to formulate guidelines that would help in the accomplishment of a firm’s mission
and goals.
Expected Learning Outcomes
At the end of the course, the learner should be able to:
a. Describe strategic management process;
b. Explain different types of organizational structures;
c. Describe various tools and frameworks for environmental analysis;
d. Explain alternative strategies at corporate, divisional and functional levels of an
organization;
e. Describe various approaches to strategy formulation;
f. Develop effective evaluation and control system for an organization.
Course Content
Topic Sub-Topics
1. Strategic Management:  Definition of terms;
Introduction  Benefits of strategy and strategic management;
 Strategic management process;
 Distinction between external and internal environments;
 Roles and functions of strategic actors.
2. Scanning the Environment  External environment;
 Task and societal environments;
 Competitive forces;
 Sources of information for external environmental analysis;
 Industry analysis;
 Forecasting techniques.
3. Internal Environment  Organizational structures;
 Organizational culture;
 Internal resources.
4. Strategy Formulation  Strategies at corporate, divisional and functional levels;
 Portfolio analysis.
5. Strategy Implementation  Strategic leadership
 Implementation tasks
6. Strategy Evaluation &  Evaluation process
Control  Strategic control systems
7. International Business  Global issues in strategic management
Strategy  Approaches to strategy formulation

Mode of Delivery
Tutorials, problem-based learning, class discussions through print, audio, video-
conferencing, computer-based and multi-media systems.
Course Evaluation
CAT 15%
Term Paper 15%
End-Semester Exams 70%
Total 100%
Core Reading Materials
Irwin, R.D., Johnson, G., and Scholes, K. (2004). Exploring Corporate Strategy. New
Delhi: Prentice-hall of India
Pearce, J. and Richard B.R. (2004). Strategic Management: Strategic Formulation and
Implementation. New York
Rao, P.S. (2016). Business Policy and Strategic Management: Text and Cases. Himalaya
Publishing House Ltd. (eBook)
Wheelen, T.L. & Hunger, J.D. (2012). Introduction to Strategic Management and Business
Policy: Towards Global Sustainability (13th ed). Pearson. (eBook)
Any other strategic management text book.

TOPIC ONE: INTRODUCTION TO STRATEGIC MANAGEMENT

Learning Outcomes
At the end of this lesson, the learner should be able to:
1. Define the concepts of strategy and strategic management;
2. Explain various levels of strategy;
3. Explain the nature of business policy and strategic management;
4. Describe the strategic management process;
5. Describe strategic management in different context;
6. Explain the roles and responsibilities of various actors in strategic management.
What is Strategic Management?

A set of managerial decisions and actions that determines the long-lasting performance
of an organization. This include four key phases:
a) Environmental scanning (external and internal)
b) Strategy formulation
c) Strategy implementation
d) Evaluation and control
Strategic management was initially known as business policy.
The study of strategic management focuses on monitoring of business environment for

opportunities and threats in line with organization’s strengths and weaknesses.
The performance of organizations is largely determined by the concepts and techniques

used to execute strategies. Hence there are firms that have succeeded over others such
as:
o o
Singapore Airline vs US Air Safaricom vs Airtel and Telcom
o Virgin Blue Atlantic vs British Airways o Toyota vs other automobile companies
o Southwest Airlines vs United Airlines o Dell Computers vs Compaq and Apple
Examples of strategic management definitions:

o A set of decisions and actions in formulation and implementation of strategies
designed to achieve objectives of an organization (Pearce and Robinson).

o The process of managing the organization mission while managing the relationship
of the organization to its environment (Lloyd L. Byasis).
o Formulation and implementation of plans and carrying out activities that matters
are vital to the total organization (Sharplin).
Importance of Strategic Management

Strategic management has become essential for each organization as the marketplace
becomes increasingly volatile due to tough economic times, advancing technological
development, and globalization. The benefits include it:
o Emphasizes long-term performance. Some firms may obtain short-term bursts of
high performance, but only a few can sustain it over a longer period of time.
o
Enables the firm to satisfy an existing market, and also adapt to the new and
changing market forces.
o
Enhances a balance or a “fit,” between a firm’s environment and its strategy,
structure, and processes.
o
Allows firms to understand the rapid changes in the business environment.
o
Strengthens the clear understanding of the strategic vision of the firm.
o Enables the firm to focus on what is strategically important.
o Enables firms to identify business opportunities for expansion.
What is a Strategy?
A planned course of action to achieve organizational goals and objectives. Other
definitions include:
o
Adoption of courses of action and the allocation of resources necessary for
achieving company goals and objectives (Alfred D. Chandler)
o
A plan or course of action for continuing importance to the organization as a whole
(Arthur Sharplin).
o
The pattern of plan that integrates an organization’s goals, objectives, policies and
action sequences into a cohesive whole (James Brain Quinn).

Levels of Strategy
In an organization, strategies exist at three levels as shown in Figure 1.
Corporate
Strategy
Business
Strategy
Functional
Strategy
Figure 1: Strategy Levels
1. Corporate-level Strategy
These strategies are concerned with the:
o Overall scope of an organization and how value will be added to different units;
o Geographic coverage, diversity of products/services, and how resources are to
be allocated etc.;
o Expectations of the stakeholders, acquisition of new businesses etc.
2. Divisional/Business Unit Strategy
The strategies at this level are concerned with:
o How to compete successfully in the respective markets;
o Which products/services should be developed in which markets;
o The extent to which they are meeting the customer needs.
3. Functional-level Strategy
Strategies at this level are concerned with
o They include strategies for different functional units of an organization (e.g.
finance, HR, ICT, operations, procurement, research and development etc).
o Successful business strategies depend on the decisions that are taken at the
operational or functional level.

Strategic Management Process

The strategic management process follows a well-defined process as shown in Figure 2.
Figure 2: Strategic Management Process
1. Environmental Scan
It involves analysis of the business environment. It includes analysis of the:
o Internal environment (the organization);
o Firm's industry (micro or task environment);
o External macro environment (PEST analysis).
2. Strategy Formulation
The development of long-range plans for effective management. It includes:
o Defining the corporate mission and vision;
o Specifying achievable objectives;
o Developing strategy; and
o Setting policy guidelines.
3. Strategy Implementation
Putting into action the formulated strategies through development of programs, budgets
& procedures. It includes change of:
o Organizational culture;
o Organizational structure;
o Management system.

4. Evaluation & Control

Measuring and evaluating the progress so that changes can be made if needed, to keep
the overall plan on track. It includes:
o Defining parameters to be measured;
o Comparing actual results and pre-determined standards;
o Making necessary changes.
Strategic Management in Different Context
Strategic management issues differ in different contexts:
a) Small (Private) Business Companies
o Operate in a single market with limited range of products/services;
o The scope of operation is less likely to be a strategic issue;
o Strategic issues are conducted by a CEO or the founder of the company;
o The founder or owner influences the choice of products, markets, and
strategies for the company.
b) Multinational Corporation
o They are diverse in terms of products and geographic markets;
o They have a wide range of businesses spread in different geographic regions
(e.g. franchised hotels, Coca Cola, etc);
o Strategic issues are major and complex and are concerned with how to
coordinate and allocate resources in various business units given their
geographic locations.
c) Manufacturing & Service Organizations
o Service organizations –strategic focus is on how to enhance customer value
e.g. attitude of staff, efficiency of service delivery process etc.
o Manufacturing organizations – strategic focus is on how to improve the product
itself and minimize the cost of production.
d) Public Sector
There are various categories:
o Nationalized Organizations: commercialized enterprises owned and controlled
by government e.g. Postal Offices, KPLC, Uchumi Supermarket, etc

o Government Agencies: relies on the political market that approves their
budgets and provide subsidies e.g. KRA, KPA, etc
o Public service organizations: health services, educational institutions etc. they
face challenges in strategic management since they are not flexible.
• In public sector, competition is concerned with competition for resource
inputs rather than the output though there’s a shift toward performance
indicators, internal markets and demand for better outputs.
• The criterion for stakeholder’s strategic choice is more significant in public
sector than it is in commercial sector.
e) Non-Profit Making Organizations
o They include charity organizations, churches, private schools etc.
o They have complex and diverse source of funds (grants) from funders who
influence strategy implementation.
o The focus is on resource efficiency rather than on outputs.
o Strategic issues are more complex due to the multiple sources of funding, high
inter-linkages and varied expectations. This lead to:
 Complex strategy formulation;
 Difficult decision-making process;
 Political lobbying.
Principal Actors in Strategic Management
Strategic management process involves the three levels of management: top-level,
middle-level, and lower-level management.
However, the main responsibility of strategic management lies with the top management.
These include:
The Board of Directors
The board of directors approve the decisions that affect the long-run performance of an
organization. They oversee the top management and manage the concerns of
stakeholders. They are appointed or elected by the shareholders to:
o Establish or approve corporate’s mission, vision, strategy, objectives and
policies;
o Employ and dismiss top managers;

o Control, monitor and supervise top managers;
o Review and approve allocation of resources;
o Protect shareholders’ interests.
The Top Management

They comprise of Chief Executive Officer (CEO), Chief Operating Officer (COO) and
heads of divisions. They perform the following key responsibilities:
o Provide corporate leadership;
o Articulate strategic vision for the company;
o Present a role for others to identify with and to follow;
o Communicates high performance standards;
o Manage the strategic planning process.
o Motivate, develop and guide the staff members. Etc.
Discussion Questions
a) Why has strategic management become so important to today’s business
companies?
b) What is the relationship between corporate governance and social responsibility?

TOPIC TWO: SCANNING THE ENVIRONMENT: Situational Analysis

Learning Outcomes
At the end of this topic, the learner should be able to:
1. Apply various tools for situational analysis;
2. Describe forces in the macro-environment of an organization;
3. Describe industry analysis tools;
4. Describe task and societal environments.
What is Situational Analysis?

A collection of methods that managers use to analyze internal and external business
environment to understand the firm's position and survival techniques. There are two
types of external environments: macro environment and micro environment (Task
environment). To conduct the situational analysis of the external environment, three
methods are used: PESTEL Analysis, SWOT Analysis and Porter’s Five Competitive
Forces Analysis.
a) Macro Environmental Factors

The external macro environment consists of nonspecific aspects in the organization's
surroundings that have the potential to affect the organization's strategies. They include:
i) Political Factors
They define both formal and informal rules under which the firm must operate. Examples
include:
• Political stability • Social welfare policies
• Taxation Policy • Terrorism activities
• Foreign trade policies • Regional and international agreements and
associations
ii) Economic Factors
They affect the purchasing power of potential customers and the firm's cost of capital.
Examples include:
• Economic growth • Unemployment
• Interest rates • GDP trends
• Exchange rates • Per capita income
• Inflation rates

iii) Social-cultural Factors

These are demographics and cultural aspects that affect customer needs and the size
of markets. Examples include:
• Population growth rate • Attitudes to work and leisure
and demographics • Consumerism (tastes and preferences)
• Age distribution • Levels of education
• income distribution • Health consciousness e.g. Covid19
• Lifestyle changes pandemic
iv) Technological Factors

They lower barriers to entry, reduce minimum efficient production levels, and influence
outsourcing decisions. These include:
• R&D activity • Cybercrime
• New discoveries/development • Internet availability
• Speed of technology transfer • Skill levels of workforce
• Automation • Telecommunication infrastructure
v) Environmental Factors
The changes in the physical environment affect the business activities. These include:
• Environmental protection laws • Natural calamities (hurricanes,
• Waste disposal (e.g. plastic bags ban) tsunamis etc)
• Energy consumption • Global warming laws
vi) Legal Factors

They affect management activities of the organizations. They include Acts,
regulations, rules, precedent, institutions and processes. Examples are:
• Monopolies legislation • Employment laws
• Product safety laws • Licensing
• Health and safety regulations • Tax laws
b) Micro Environmental Factors

These are external factors close to the company that have a direct impact on the
organizations activities. These factors include:
i) Shareholders
• Any person or company that owns at least one share (a percentage of
ownership) in a company. Also known as a "stockholder". They exert
pressure on strategy.

ii) Suppliers
• An individual/organization involved in the process of making a
product/service available for use by a consumer.
• A closer supplier relationship ensures competitive and quality products
for an organization.
iii) Distributors
• Entity that buys non-competing products or product-lines, warehouses
them, and resells them to retailers or direct to the end users.
• They provide a wide range of services (e.g. product information,
estimates, technical support, after-sales services, credit).
iv) Customers
• A person, company, or other entity which buys goods and services
produced by another person, company, or other entity.
• Firms must strive to provide the needs, wants and benefits for their
customers.
v) Competitors
• A company in the same industry or a similar industry which offers a
similar product or service.
• They can reduce the prices of goods and services as they attempt to
gain a larger market share. Examples: McDonald's vs Burger King,
Coca-Cola vs Pepsi etc.
vi) Media
• Positive or adverse media attention on an organizations product or
service can make or break an organization.
• Consumer programmes with a wider and more direct audience can have
a very powerful and positive impact, forcing organizations to change
their tactics.
Industry Analysis
An industry is a group of businesses that produce similar products or services (e.g. soft
drinks or education or financial services).

Industry analysis is examining the actions of key stakeholders in a particular industry such
as suppliers, competitors, and customers.
Michael Porter’s Five Competitive Forces Model
Michael Porter proposed an analysis of both the attractiveness of the industry and the
firm’s position in the industry. He suggested five forces model, which is one of the most
recognized framework for the analysis of business strategies.
These forces are as shown in Figure 3.
Figure 3: Porter’s Five Competitive Forces

a) Threat of new entrant: New entrants affect the company’s profits as the
consumers have more variety to choose from.
b) Bargaining power of buyers: The firms’ influence on the buyer to purchase their
product or how much the buyer depends on the product being produced by the
firm.
c) Threat of substitute product of services: more than one firm producing similar
or the same product or service.
d) Bargaining powers of suppliers: Company dependence on resources the
suppliers provide to create their product or services.
e) Rival among existing competitors: Rivals fighting to be dominant in the market,
to stay in business and maximize profit.

SWOT Analysis
SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is a tool used to
examine the firm’s internal strengths and weaknesses and the opportunities and threats
posed by the external environment as shown in Figure 4.
Figure 4: SWOT Analysis
SWOT analysis has several benefits, it enables the firm to:

o Position itself to take opportunities from the business environment
o Identify and eliminate the threats from the business environment
o Focus on its strengths and minimize it weaknesses.
o Detect its distinctive strengths that are underutilized
o Formulate realistic strategies to achieve organizational goals and objectives.
o Determine the type of businesses or industries to operate.
However, SWOT has been criticized due to the following, it:
o Generates long list of priorities;

o Does not utilize weights to reflect the priorities;

o Uses ambiguous words and phrases;
o Lacks the link to strategy implementation;
o The same factor can appear twice (e.g. a strength can also be a weakness).
1. Analyze the relevance of conducting environment scanning for formulation of
strategies;
2. Explain the influence of political environment on company performance;
3. Discuss the pros and cons of using TOWS Matrix in situational analysis.

TOPIC THREE: INTERNAL ENVIRONMENT: Organizational Analysis

Learning Outcomes
At the end of the topic, the learner should be able to:
1. Analyze organizational resources and capabilities;
2. Discuss the core competencies of the company;
3. Assess organization’s competitive strengths;
4. Assess a company’s structure and corporate culture and how it affects strategy
development.
What is organizational Analysis?

 The process of identifying and establishing the firm’s resources and capabilities
through scanning the strengths and weaknesses.
 Internal scanning enables the firm to determine its capabilities in taking advantage
of opportunities while avoiding threats.
Core Resources and Capabilities

Resources: basic building blocks of the firm. They include:
a. Tangible assets e.g. b. Human assets e.g.
 Plants and location  Talented employees
 Equipment  Knowledge and skills
 Finances  Efficient leaders
 Machinery
c. Intangible assets e.g.
 Technology
 Patents and copyrights
 Culture
 Reputation
 Motivation
Capabilities: the ability of the firm to exploit its resources. Capabilities are built from
knowledge, skills talents, intellectual capital, and commitment of organizational
workforce. Hence capabilities are functional-based e.g.
 Marketing capabilities
 Manufacturing capabilities
 HR capabilities

Core Competencies: a cross-functional integration and coordination of company

resources and capabilities to build competitive advantage. Examples of core
competencies:
Company Core Competencies
a. McDonald Restaurant operations, marketing and global infrastructure
b. Ford Design, branding, sales, service operations
c. Vodafone Extensive coverage, technology, low cost
d. Dr. Reddy’s Lab Low cost, quality, wide range of products
Evaluating Capabilities
Not all capabilities are core competencies. Hence firms use two methods to assess
whether a capability is a core competency or not. These include:
a. VRIO Framework
It consists of four specific criteria, namely (see Figure 5).
 Valuable capability Does it provide customer value and competitive advantage?
 Rare capability Do no other competitors possess it?
 Imitable capability Is it costly for others to imitate it?
 Organization capability Is the firm well-organized to exploit the resource?
Figure 5: VRIO Framework

b. Value Chain Model

It examines the firm’s activities that contribute to the value to the customer. It views
business operations as a process of activities from raw material/inputs to the final stage
of delivering the product/service to the customer. It identifies the areas with high costs
and how to minimize them (see Figure 6).
Figure 6: Porters Value-Chain Model

 Primary activities: they begin with inbound logistics (inputs) through operations
process and outbound logistics (warehouse and distribution) to marketing and sales,
and finally to service (installation, repair and sale of parts).
 Support activities: these include procurement (purchasing), human resources,
technology development (R&D), and firm infrastructure (accounting, finance, strategic
planning) ensures that the firm’s primary value chain activities operate efficiently.
 Systematic examination of value chain activities enables the firm to identify its strength
and weaknesses.
Basic Organizational Structures

There are various forms of organizational structures ranging from basic to complex. Each
structure supports corporate strategy differently. However, the three basic structures are:
Simple structure
 No functional or product categories;
 Appropriate for small, entrepreneur-based firms with one or two product lines;
 Operate in niche markets.

Functional structure
 Applicable for medium-sized firm with several product lines in one industry;
 Employees are specialists in various business functions e.g. operations,
marketing, finance and HR.
Divisional structure
 Appropriate for large corporations with complex product lines in several industries;
 Employees are functional specialists in product or market distinctions;
 Examples General Motors, Bidco, P&G etc.

Corporate Culture
 The collection of beliefs, expectations, and values learned and shared by a firm’s
members and transmitted from one generation of employees to another.
 Culture reflects the values of the founder and the mission of the firm.
 It gives the firm a sense of identity in terms who they are and what they do.
 It is the dominant orientation of the firm e.g. Innovation-Google, customer service-
Nordstrom, R&D- HP etc
 It includes informal work rules (known as “the company way” of doing things) that
employees follow without questioning.
Functions of Corporate Culture

a) Depicts a sense of identity for employees.
b) Enhances employee commitment to doing greater things.
c) Improves the stability of the firm as a social system.
d) Serves as a reference point for employees for appropriate behavior.
e) Shapes the behavior of people in the firm hence affecting performance.

1. Identify the core competencies of a firm e.g. Safaricom company. What makes the
firm to excel in its operations?
2. How can value-chain analysis help identify a company’s strengths and weaknesses?
3. In what ways can a corporation’s structure and culture be internal strengths or
weaknesses?

TOPIC FOUR: STRATEGY FORMULATION

Learning Outcomes
At the end of this topic, the learner should be able to:
1. Discuss various types of strategies at corporate, divisional and functional levels;
2. Highlight the main elements of strategy formulation;
3. Explain the portfolio analysis.
What is Strategy Formulation?

The process of choosing the most appropriate courses of action to achieve the firm’s
defined goals. Also known as strategic planning or long-range planning, strategy
formulation focuses on crafting the firm’s mission, objectives, strategies, and policies.
a) Vision and Mission
Vision Statement
• Vision is where you see yourself at the end of the horizon OR milestone therein;
• It provides direction and inspiration for organizational goal setting;
• It is a long-term statement and typically generic & grand;
• It does not change unless the company is getting into a totally different kind of
business.
Features of a good vision statement:
• Easy to read and understand;
• Gives the destination and not the road-map;
• Provides a motivating force, even in hard times;
• Achievable and challenging to stretch us beyond what is comfortable.
• Etc.
Mission Statement
• It is the purpose and relevance for the firm’s existence;
• It tells what the company is providing to society e.g. a service or a product;
• It is the road to achieve the vision of the company.
Mission statement should be -
• Achievable and practicable;
• Precise and short;

• A motivation to the society and members of the organization.

• Unique, inspiring, and distinctive from other firms and organizations.
• Flexible enough so that it is adopted in changing present scenario.
• Etc.
Examples of Vision & Mission Statements

i) University of Nairobi
Vision: To be a world-class university committed to scholarly excellence
Mission: To provide quality university education and training and to embody the
aspirations of the Kenyan people and the global community through creation,
preservation, integration, transmission and utilization of knowledge.
ii) Safaricom Foundation
Vision: A thriving and prosperous Kenya – Safaricom Foundation
Mission: To build communities and transform lives
iii) Sameer Africa
Vision: To be the ultimate provider of innovative and reliable tyre solutions
Mission: To provide safe mobility with unparalleled experience
iv) Kenya Airways
Vision: Be the Pride of Africa, by inspiring our people and delighting our guests
consistently.
Mission: Contributing to the sustainable development of Africa
b) Objectives & Goals

Goals: a statement of purpose. It specifies what the firm should do to attain its mission
and vision. Goals make mission more prominent.
Features:
• Precise and measurable
• Realistic and challenging
• Achieved within a specific time frame
• Etc.

Objectives: aims that firms want to achieve over a period of time. They enable the
firm to measure the progress towards to its stated goal.
Features of Objectives
• Both short-term as well as long-term;
• Respond and react to changes in the environment;
• Feasible, realistic and operational.
c) Strategies:
A roadmap of an organization. It maximizes an organization’s strengths and minimizes its
weaknesses.
Features of a strategy:
• Enables the firm to foresee the future;
• Deals with long-term developments rather than routine operations e.g.
innovations or development of new products;
• Dictates the behavior of customers, employees and competitors.
d) Policies
A broad guideline for decision-making that links the formulation of strategy with its
implementation.
Firms use policies to make sure that employees throughout the firm make decisions &
take actions that support the corporation’s mission, objectives and strategy.
Difference between Policy and Strategy

Policy Strategy
 A blueprint of the firm’s repetitive activities  Deals with new organizational decisions
 Formulation is by top-level management  Formulated by middle-level management
 Deals with routine/daily activities  Deals with strategic decisions

Types of Strategies
a) Corporate Strategies
They focus on overall direction and management of the firm and its core product portfolios
regardless of the size. It deals on three key issues:
o The firm’s overall orientation towards growth, stability and retrenchment
o The industries or markets that the firm competes its products
o Allocation of resources
There are various corporate-level strategies:
Growth strategies Expand activities of the firm by
o
Concentrating on existing product line
o
Diversifying into new product line or industries
Stability strategies No change to the firm’s current activities by making decision
to:
o Pause or choose to do nothing new
Retrenchment strategies Reduce the firm’s level of activities due to financial
challenges such as bankruptcy or liquidation by adopting:
o Turnaround strategy
o Sell-out strategy or
o Bankruptcy or liquidation strategy
b) Divisional Strategies
Divisional or business unit strategies are based on the firm’s understanding of its position
and business environment. There are various strategies for business-level units such as:
i) Porter’s Competitive Strategies

Michael Porter suggested three “generic” competitive strategies for outperforming others
in the industry. They are known as generic since they can be applied by any company
regardless of size or type. These include:
Cost Leadership strategy: ability of a firm to produce and sell products/services more
efficiently than its rivals. The strategy approach aims at reducing production costs.
Differentiation strategy: ability of a firm to easily produce unique and superior value to
the customer such as good quality, unique features, customer excellence etc.

Focused Strategy: ability of a firm to combine both a lower-cost strategy and

differentiation simultaneously. This brings about two focused strategies: cost focus and
differentiation focus as shown in Figure 7.
Figure 7: Porter’s Generic Competitive Strategies
ii) Blue Ocean Strategy

 In the recently published book the Blue Ocean Strategy – How to Create
Uncontested Market Space and Make Competition Irrelevant, Chan Kim and
Renee Mauborgne suggests that firms can focus on opportunities in the
uncontested waters (blue ocean) rather than trying to compete for the opportunities
in the existing markets (red waters).
 While Michael Porter competitive strategy suggest that firms can choose either
lower cost or differentiation, the blue ocean strategy suggests that firms can pursue
both differentiation and lower cost strategies simultaneously.
 The strategy focuses on value innovation, which requires a firm to create value to
the customer by offering special service at a relatively low cost and price.
 The strategy proposed tools and frameworks such as the Four-Action Framework
that enables firms to move away from the bloody competition to the blue horizons
(see Figure 8).

Figure 8: Kim and Mauborgne (2015): The Four-Actions Framework
c) Functional Strategies
 Firms have various interrelated functions or departments such as
production/operations, finance, human resources, marketing, and research and
development (R&D).
 The strategic managers in these functions must ensure efficient strategic planning,
implementation and control.
 It is at these functional levels that organizational strategies are implemented.
Examples of functional-level strategies are highlighted in Table 1.
Functional Strategy Concerned with:
Operations Strategy Product design, location, quality, facilities &
infrastructure, scheduling etc.
Marketing Strategy Pricing, promotion, selling, distribution etc.
Financial Strategy Acquisitions, cost reductions, investments, inventory,
budgeting, cash management etc.
R&D Strategy Technology transfer, product development, product
modifications, process improvement, innovations
HR Strategy Recruitment, compensation, training & development
Table 1: Functional Strategies
Portfolio Analysis
 It is when the management of the firm perceives its product line and business units
as a chain of investments that it should generate income.

 Most firms manage their business portfolios through acquisitions and divestitures
to enhance the shareholder value. The popular tool for analysis of business
portfolios is the Portfolio Matrix.
The Portfolio Matrix
 The Boston Consulting Group developed the portfolio matrix tool for allocation of
resources for competitive advantage.
 The tool highlights the firm’s growth rate, competitive position and market share.
 It shows the businesses in question marks, the stars, the dogs and the cash cows
indicating different cash investments as shown in Figure 9.
Figure 9: Boston Consulting Group, Inc. (1970): Business portfolio
The stars: businesses in high-growth (market leaders), strongly competitive position

hence high opportunities for growth and profit.
The question marks: are new businesses with weak market share but potential growth
rate hence require more investment to flourish.
The cash cows: businesses with strong competitive position but low growth rate. They
are well established and can make products or services at low costs. These businesses
are milked for cash to be invested in the question marks products.
The dogs: businesses with low growth rate and a weak market share hence not profitable
and should be eliminated or sold off.

1. Can a firm adopt a cost leadership strategy and a differentiation strategy
simultaneously? Why or why not?
2. Is it possible for a firm to have a sustainable competitive advantage when its
industry becomes hypercompetitive?

TOPIC FIVE: STRATEGY IMPLEMENTATION

Learning Outcomes
1. Outline elements that necessitate implementation of the strategy;
2. Identify steps involves in strategy implementation;
3. Highlight the roles of various strategic actors.
What is strategy implementation?

o The translation of a chosen strategy into organizational action so as to achieve
strategic goals and objectives.
o It is the manner in which a firm develop, utilize, and amalgamate organizational
structure, control systems, and culture to adopt strategies that lead to
competitive advantage and a better performance.
o It involves development of:
a) Programs:
 A statement of activities or steps needed to accomplish a single-use plan.
 It involves restructuring the firm, changing the internal culture, beginning a new
research effort etc.
b) Budgets:
 A list of detailed cost of programs;
 It specifies through the expected impact on the firm’s financial future.

c) Procedures:
 A system of sequential steps or techniques describing how a particular task is

to be done;
 It gives detail of activities to be carried out in the sequential order to completion.

Who implements the Strategy?
 Regardless of the size of the firm, the implementers of the strategy are people
at all levels.
 From the CEO, divisional directors, heads of functional units and subordinates,
everyone has a role to play in the implementation of corporate, business and
functional strategies.
 However, the crucial people to the successful implementation of the strategy in

most cases are not involved in the development of the strategy. this may lead
to failure of strategy implementation.
Leadership in strategy implementation

o Strategic leadership is the ability to mobilize and concentrate resources on
activities that will position a firm for success in the future.
o Leadership plays a major role in the implementation of the strategy. There are
three levels of leadership:
 Top (strategic) level;
 Middle (organization) level;
 Bottom (production/action-oriented) level.
o While leaders at the top are the decision makers and visionaries, the leaders at
the bottom levels are the doers who implement the suggested strategies.
o The middle-level leaders are involved in establishing the mid-term plans,
procedures, processes, budgets and allocation of resources.
o The top-level leaders are strategic leaders responsible for setting the strategic
direction of the firm.
Functions of Strategic Leadership
Strategic leaders have important roles and functions such as:
 Forecasting the future: by keeping abreast with the changes in the business
environment e.g. technological dimensions, competition, government policies,
global pandemics etc.

 Establishing a vision for the firm: strategic positioning and transformation of the
firm.
 Formulation of mission and objectives: provide clear direction for the firm
 Strategy formulation: setting up plans of action needed for strategy
implementation.
 Activation of strategic plans: by organizing people and structures, resource
allocation and change management.
1. Explain the characteristics of a strategic leader;
2. Describe the steps involved in the strategy implementation;
3. What causes failure of strategy implementation?

TOPIC SIX: STRATEGY EVALUATION & CONTROL

Learning Outcomes
1. Apply the concepts of strategic control;
2. Explain the process of strategic control;
3. Discuss various types of strategic controls.
Evaluation and Control Process
Evaluation and control can follow a five-step feedback model as shown in Figure 10.
1. Establish what to measure

o Top managers and functional managers need to specify the parameters to be
monitored and examined.
o The actual results should be measurable by achievable objectives.
2. Determine standards of performance
o Standards to measure performance should reflect the strategic objectives.
o They should measure acceptable results and acceptable deviations
3. Measure actual performance
o Measurements should have predetermined timelines.
4. Compare
o Compare the actual performance with the standard metrics.
o The evaluation process may stop if the outcome is within the set tolerance range.
Otherwise, go to step 5.

5. Take corrective action

o If the actual results are not within the tolerance range, action should be taken to
correct the variation and prevent the occurrence.
Types of controls
Controls allow the firm to focus on the actual performance results (output) activities that
create performance (behavior) and resource allocation (input).
Output controls Focus on the end results e.g.
by setting:  Sales quotas
o Management by
 Profit objectives
objectives
o Performance targets  Customer satisfaction
or milestones surveys
Behavior controls Specifies actions through: e.g.
o Policies  Procedures
o Rules
o
 Making sales calls
Standard operating
procedures  Getting to work on time
o Orders from seniors  ISO 9000 standards
Input controls Emphasizes on resources e.g.
such as:  Competencies
o Skills
o
 Education and
Values experience
o Abilities
o Motives
Table 2: Types of Controls
1. Discuss various factors that affect the strategic evaluation and control;
2. Discuss sources of information necessary for strategic control.

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UNIVERSITY OF NAIROBI

COLLEGE OF EDUCATION & EXTERNAL STUDIES

BUSINESS POLICY & STRATEGIC MANAGEMENT

DOREEN N. INYO E-Mail: nanyama@uonbi.ac.ke

Tuesday, April 14, 2020

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Core Reading Materials

Any other strategic management text book.

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TOPIC ONE: INTRODUCTION TO STRATEGIC MANAGEMENT

What is Strategic Management?

The study of strategic management focuses on monitoring of business environment for

The performance of organizations is largely determined by the concepts and techniques

Examples of strategic management definitions:

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Importance of Strategic Management

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Figure 1: Strategy Levels

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Strategic Management Process

Figure 2: Strategic Management Process

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4. Evaluation & Control

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The Top Management

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TOPIC TWO: SCANNING THE ENVIRONMENT: Situational Analysis

What is Situational Analysis?

a) Macro Environmental Factors

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iii) Social-cultural Factors

iv) Technological Factors

vi) Legal Factors

b) Micro Environmental Factors

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Figure 3: Porter’s Five Competitive Forces

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Figure 4: SWOT Analysis

SWOT analysis has several benefits, it enables the firm to:

o Generates long list of priorities;

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TOPIC THREE: INTERNAL ENVIRONMENT: Organizational Analysis

What is organizational Analysis?

Core Resources and Capabilities

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Core Competencies: a cross-functional integration and coordination of company

Figure 5: VRIO Framework

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b. Value Chain Model

Figure 6: Porters Value-Chain Model

Basic Organizational Structures

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Functions of Corporate Culture

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TOPIC FOUR: STRATEGY FORMULATION

What is Strategy Formulation?

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