UNIVERSITY OF PROFESSIONAL STUDIES, ACCRA DIPLOMA LEVEL 200
Business policy and Strategy 1
Facilitators; Danaa Natognmah, Sam Tuffour, Kwame FosuBoateng
This course will introduce students to the relationship between strategic planning and human resource planning. Issues to be discussed include budgeting, control, business strategy and policy and appropriate organizational design with particular emphasis on the relationship of these aspects to labour power planning and human resource development. The main theoretical approaches to the study of strategy and policy will be taught and understanding of techniques used to explain policy formulation, evaluation and policy change
Week 1- Introduction
Business policy and strategy and synonymous to strategic management or strategic planning. The goal is to understand how companies gain competitive advantage. This requires companies to set out a mission, vision and corporate values for themselves. The formulation of these things will require its implementation and subsequent evaluation. Stages in strategic management;
◦ Formulation ◦ Implementation and ◦ Evaluation
Strategic Management (SM)is the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives. Hence SM focuses of integrating the following towards achieving organizational success
◦ ◦ ◦ ◦ ◦ ◦ Management Finance Marketing Accounting Production Research and development
Strategic Management defined
Strategic Management defined (cont’d)
SM could also be defined as the set of management decisions and actions that determines the long-run performance of an organization. Strategy refers to a comprehensive master plan that tells us how the organization is going to achieve its objectives Strategy=game plan=compass=road map=ploy
◦ It involves top level managers ◦ It affects the long term directions of the entire organization ◦ It requires the commitment of the large proportion of the firm’s resources ◦ It involves gaining competitive advantage ◦ It addresses changes in the business environment ◦ It focuses on building on the resources and competences
. When.Strategic Management defined (cont’d)
What makes a decision strategic in nature.
◦ Corporate level ◦ Business level ◦ Functional level
The classification of decisions falling under these different levels differ among organizations but mostly influenced by size.Strategic Management defined (cont’d)
Levels of strategy.
Some issues considered at the formulation stage.
◦ Identification of new business opportunities ◦ Decision of which business to abandon ◦ Allocating resources across the organization ◦ Decision of expansion into new markets ◦ Decision on mergers and acquisitions ◦ etc
Some issues considered at the implementation stage.
◦ Division of responsibilities/task ◦ Mobilization of employees and management ◦ Consensus building on how to achieve the goal/target set ◦ Acquisition of resources needed to implement tasks ◦ Acquisition of resources needed ◦ etc
◦ Performance measurement indicators ◦ Methods of acquiring data on performance ◦ Methods of measuring performance ◦ Matching actual performance to projected performance ◦ Communicating the results to stakeholder for onward consideration for the next strategic planning period
Some issues considered at the evaluation stage.
evaluate and select appropriate strategies ◦ Implement selected strategies ◦ Measure and evaluate performance
◦ Identification/formulation of vision. mission and objectives or the organization ◦ Assessment of the external business environment’ ◦ Assessment of the internal business environment ◦ Establishment of long term objectives ◦ Generate.The Strategic Management Model
The model consists of the following sequential activities.
Benefits of Strategic Management
◦ Helps in identifying opportunities ◦ Facilitates an objective review of managerial problems ◦ Improves coordination ◦ Minimizes the influence of adverse conditions on the organization ◦ Facilitates the formulation of decisions that better support the corporate objectives ◦ Enhances effective communication ◦ Enhances effective allocation of time and resources ◦ Helps to effectively blend individual responsibilities ◦ Encourages forward thinking (pro-activeness) ◦ Encourages favourable attitudes towards change ◦ It provides discipline and formality to the management of the business
◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Poor appreciation of the benefits Fire fighting attitude Too expensive Time consuming Laziness Complacency with current successes Fear of failure Over-confidence Fear of the unknown Prior bad experiences Conflict of interest between top management and the organization’s utmost goal
.Risks of Strategic Management
Why some firms do no strategic management.
◦ Provide commonality of interest ◦ Provide opportunities and present a challenge to employees ◦ Reduce monotony
(HINT – REFER TO THE VISION STATEMENTS OF REAL COMPANIES AND DISCUSS)
.WEEK 2 &3– STRATEGY FORMULATION
Vision is the desired future state of an organization.
◦ It is ‘what we want to become’
Vision should shared. Thus it should.
◦ What is our business? ◦ Why do we exist?
◦ It identifies the scope of a firm’s operations in terms of product and market
It answers questions like.STRATEGY FORMULATION (Cont’d)
Mission statement is an enduring statement of purpose that distinguish one business from other similar firms.
STRATEGY FORMULATION (Cont’d)
Why mission statement?
◦ It helps in mobilizing resources ◦ It helps in setting policy guidelines ◦ It sets the company apart from other competitors in terms of product and business philosophy
Mission statement=business creed=business purpose
Benefits of a strong Mission Statement
Unanimity of purpose Sets the organization’s climate and tone Helps in resource allocation Sets the focal point for the work structure Helps to recycle divergent management views
Features of a strong mission statement
It should be broad in scope Reconciles interest of diverse stakeholders Finely balanced between specificity and generality It must arouse positive feelings and emotions It must motivate readers to action It must generate a good image of the firm to outsiders Must be dynamic in nature Must provide a sense of how the company wants to grow
Hints in writing a mission statement
It should be broad It should not be too lengthy It must be inspiring It must describe the products/service provided by the firm It must reveal the corporate social responsibility philosophy of the organization It must be enduring
Examples on non-ethical action
◦ ◦ ◦ ◦ ◦
Misleading advertisement Insider trading Tax evasions Financial malfeasance Producing sub-standard goods etc.
. Code of business ethics provides the basis on which policies can be devised to guide daily behaviour and decisions in the work place.Business Ethics
Ethics are principles of conduct within organizations that guide decision making and behaviour.
Documented code of ethics only become effective when followed by periodic ethics workshops to sensitize people on. To do so business strategies could consider an interactive fun/computer-game using ethical situations like Citicorp Managers have the responsibility of ensuring ethical leadership
◦ its composition ◦ Essence ◦ Punishments for non-adherence
There is the need to create an ethics culture. set of platitudes or a window dressing act.Business Ethics (cont’d)
Merely having code of ethics documented could serve as a public gimmick.
he ends up destroying
He destroys people (the most vital resource of the organization) He destroys the spirit of the organization (the spirit of the organization rests at the top) He destroys performance
No one should ever think of being a business strategist unless he/she is willing to have his/her character serve as the role model. no mater how knowledgeable. how brilliant. Every ethics workshop should include messages from the CEO emphasizing ethical business practices and the need to report unethical behaviours
.Important point in implementing Business Ethics
The manager is solely responsible for how ethical the organization is
◦ If a persons lacks character and integrity. how successful.
Corporate Social Responsibilities (CSR) defined
CSR refers to the duty that a corporate entity has to create wealth by using means that avoids harm and also to protect or enhance societal assets (Steiner and Steiner. 2000). social investment and public policy debate. A companies actions that contributes to sustainable development through the company’s core/business activities.
◦ Charity (organizations should give to the needy as a responsibility) ◦ Stewardship (organizations should consider the interest of all persons who are affected by decisions and policies of the company or business)
. Principles of CSR.
e they allow good organizations to exist)
.Theories of CSR
Stakeholder theory ( the society is a stakeholder to the organizations hence their needs should be met) Social contracts (every organization has a contractual obligation with society) Legitimacy theory (the society decides or grants legitimacy to the organizations i.
Arguments for/against CSR
FOR It balances corporate power with responsibility It discourages government regulations It promotes long term profits Against It lowers economic efficiency and profits It imposes unequal costs among competitors It imposes higher cots which are passed to consumers It requires social skills which businesses may lack It places responsibility on business instead on individuals
It improves business value and reputation It corrects social problems caused by businesses
Dimensions of CSR
Economic – companies have a responsibility to produce goods and services that society needs Legal – companies have responsibility to obey law Discretion – Companies have to exhibit voluntary roles driven by social norms.e companies have to exhibit behaviour and ethical norms beyond what is required Ethical – companies have to exhibit behaviour and ethical norms beyond what is
◦ To whom should we be socially responsible? ◦ To extent should we be socially responsible towards them? ◦ What is the nature of our products and market? ◦ How much resources do we have to invest in CRS ◦ What issues constitute CSR?
.Making CSR profitable
Companies ask the following questions when formulating their CSR policy.
.Aligning CSR to Strategy
Identify the stakeholders of the company Understand the expectation of the stakeholders from the company Reconcile identified claims of the different stakeholders to the vision and strategy of the company Assign priorities to the various claims Coordinate the claims with other elements of the companies mission and plan implementing the CSR activities.
Why the heightening concern for CSR today?
Common sense approach that ‘companies should be able to do well by doing good’ Resurgence of environmentalism Increasing buyer/consumer power Globalization of businesses CSR’s effect on the mission statement
Implication of CSR for firms
◦ ◦ ◦ ◦
Better risk management Gain government approval Stronger reputation Improved productivity
CSR activities confer benefits beyond enhanced reputation (Smith. retain and develop managerial talents (Hempel &Porges. 2003) CSR activities can be tools to attract. 2005)
. 2004) Doing good leads to making more money (Pearce & Doh.
then the deficiency should be corrected or the activity abandoned for a more favourable on (Sloan. 1964) ◦ A good company delivers excellent products and services and a great company does all that and strives to make the world a better place (Ford.Concluding thoughts of CSR
CSR rests on a continuum
◦ The strategic aim of business is to earn a return on capital and if in any particular case the return in the long run is not satisfactory. 2005)
WHERE WOULD YOU PLACE YOUR COMPANY ON THE CONTINUUM?
. 2003) ◦ The actions of a company to benefit society beyond the requirement of the law and the direct interests of shareholders (Pearce and Doh.
.WEEK 4 – EXTERNAL ENVIRONMENTAL ANALYSIS
The external environment consists of all elements outside the domain of an organization which has/can have an influence of the competitive position of an organization The essence of conducting an external environmental analysis/audit is to develop a finite list of opportunities that could be of benefit and threats that should be avoided Thus it is not aimed at developing an exhaustive list of every factor that could influence a business rather it is aimed at identifying key variables that offer actionable responses (offensive or defensive) in strategy formulation.
Components of the External Environment
The industry (Immediate external environment)
The remote external Environment
Tools for conducting External Environmental Analysis
Immediate External Environment (Industry)
◦ To conduct analysis in this environment.
. the Porters Five Forces is used
The Remote External Environment
◦ To conduct analysis in this environment the PESTEL is used.
PORTERS FIVE FORCES [INDUSTRY ANALYSIS]
Potential development of substitutes
Bargaining Power of suppliers
Rivalry among competing firms
Bargaining power of Consumers
Potential entry of new competitors
Microsoft did when it began to offer internet browsers. new product introductions. marketing. first.and often growth potential.Porters Five Forces cont’d
Industry competitors: Rivalry among existing competitors takes many familiar forms. High rivalry limits the profitability of an industry. or other means. on the intensity with which companies compete and. and the rate of investment necessary to compete. The degree to which rivalry drives down an industry's profit potential depends. as Pepsi did when it entered the bottled water industry. Substitute: A substitute performs the same or a similar function as an industry's product by a different means. it will suffer in terms of profitability . industry profitability suffers. and service improvements. on the basis on which they compete. they can leverage existing capabilities and cash flows to shake up competition. Substitute products or services limit an industry's profit potential by placing a ceiling on prices. Plastic is a substitute for aluminium. Videoconferencing is a substitute for travel. If an industry does not distance itself from substitutes through product performance. second. Particularly when new entrants are diversifying from other markets.
. When the threat of substitutes is high. costs. advertising campaigns. New Entrants: New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices. including price discounting. E-mail is a substitute for express mail.
demanding better quality or more service (thereby driving up costs). including suppliers of labour. Buyers are powerful if they have negotiating leverage relative to industry participants. Microsoft. and generally playing industry participants off against one another.Porters Five Forces cont’d
Buyers: Powerful customers . Suppliers: Powerful suppliers capture more of the value for themselves by charging higher prices. Powerful suppliers.
. have limited freedom to raise their prices accordingly. can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices. all at the expense of industry profitability.the flip side of powerful suppliers can capture more value by forcing down prices. PC makers. limiting quality or services. for instance. using their clout primarily to pressure price reductions. has contributed to the erosion of profitability among personal computer makers by raising prices on operating systems. especially if they are price sensitive. competing fiercely for customers who can easily switch among them. or shifting costs to industry participants.
Socio-cultural: These are factors that arise as a result of demographic change or changes in consumer behaviour patterns. (or ecological and Legal
Political: Political factors include change in governments may be limited to home country but other . Technological. Socio-cultural.PESTEL [Remote Environmental Analysis]
PESTEL stands for Political. Environmental. and EU with corresponding changes in policies and priorities may have an impact the organization and how it operates. but as global trade continues to grow. international bodies such as ECOWAS. cultural norms and even religious considerations
. For instance the 2008 financial crisis was as a result of USA mortgage crisis but it ended up affecting many nations including Ghana. Economic. Economic: Economic factors may also be limited to the home country. economic difficulties in one nation tend to have broader impact.
. such as the Sarbanes -Oxley Act in the USA and the Basel II Accord. Some legal issues may originate from the national government but others. Recent examples are the changes to international financial compliance regulations. The identification of technology that provide opportunity for the growth of the organization is very critical if an organization is able to recognize the potential that earlier. may operate across a broader spectrum. Legal: It is vital to consider factors arising from changes to the law.PESTEL Cont’d
Technological: this is a result of the development of technology. which are developments in IT and developments in technology specific to an industry or market. Environmental (or ecological): Is about the concerns with regard to the 'green issues'. One issue when considering the legal element of the PESTLE analysis is to recognise laws that have an impact upon the organization even though the originated from countries other than that in which the organization is based. There are increasing concerns about packaging and the increase of pollution. There are two types of technological change.
WEEK 5.INTERNAL ENVIRONMENTAL ANALYSIS
Aside the external forces. there are elements within the organization that can serve as a hindrance or catalyst to gaining competitive advantage. To do this kind of analysis.
◦ SWOT Analysis ◦ Resource Based View [RBV] ◦ Value Chain Analysis [VCA]
. three tools will be considered.
This is an acronym that stands for Strength. Opportunity and Threat
◦ Strength: The internal positive capabilities of an organization which enables it to do business easily ◦ Weakness: Internal negative aspects of the organization that will diminish the chances of success ◦ Opportunity: External factors that present strong basis for gaining competitive advantages ◦ Threat: External factors that have the potential to harm the organization
Strengths-will aid the development of the organization
Weaknesseswill undermine the development of the organization
Opportunities -available to be grasped by the organization
Threats – presenting potential problems for the organization
SWOT may sometimes run the following risks. (3) it can overemphasize single strengths. (2) it can be static and ignore changing circumstances. (1) risk of overemphasizing internal strengths and downplaying external threats. (4) a strength may not necessarily be a source of competitive advantage
Such critical resources then get management’s prime attention Hence RBV’s basis for conducting internal analysis differs from the SWOT approach
.Resource Based View (RBV)
The resource-based view (RBV) as a basis for the competitive advantage of a firm lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm's disposal to transform a short-run competitive advantage into a sustained competitive advantage It seeks to find the set of Resources (and not opportunity or threat) that are critical to attaining the sustained competitive advantage.
the price of the resource will be a reflection of the expected discounted future above-average returns ◦ In-imitable – If a valuable resource is controlled by only one firm it could be a source of a competitive advantage ◦ Non-substitutable – Even if a resource is rare.RBV cont’d
A critical resource should possess the following or it should be ‘VRIN’
◦ Valuable: A resource must enable a firm to employ a valuecreating strategy. a resource must be rare by definition. In a perfectly competitive strategic factor market for a resource. an equally important aspect is lack of substitutability
The VRIN characteristics mentioned are individually necessary. potentially valuecreating and imperfectly imitable. by either outperforming its competitors or reduce its own weaknesses ◦ Rare – To be of value. but not sufficient conditions for a sustained competitive advantage hence a critical resource should possess all four qualities
the idea of seeing a manufacturing (or service) organisation as a system. How value chain activities are carried out determines costs and affects profits.money.VCA
A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market The idea of the value chain is based on the process view of organizations. land. VCA therefore analyses the internal operational chain to ascertain which part of the chain adds the most value to the end product. materials. labour. administration and management. buildings. Its is not on findings a critical resource or SWOT but improving efficiency in the operational chain
. made up of subsystems each with inputs. equipment. and outputs involve the acquisition and consumption of resources . transformation processes. transformation processes and outputs. Inputs.
Strategies are actions to be taken to accomplish long-term objectives.
◦ They should be
Quantifiable Realistic Understandable Challenging Hierarchical Obtainable Congruent with the organization’s vision and strategy
.WEEKS 6&7 – Establishing Long-Term Objectives
Long-term objectives are results or targets expected from pursuing certain strategies over a long term period (beyond 2 years). Nature of long-term objectives.
The are basically three different (but not mutually exclusive) once
◦ Low cost leadership strategy (attaining sustainable competitive advantage through offering very affordable products) ◦ Differentiation strategy (attaining sustainable competitive advantage through the offering of superior quality products beyond what is common to the market) ◦ Focus strategy (offering unique products to a selected target market whose needs have hitherto not been met.Generic Strategies
These are fundamental philosophies by which organizations believe they can attain sustainable competitive advantage. It is also called nitch marketing strategy)
◦ Forward Integration (gaining ownership or increasing control over distributors or retailers ◦ Backward Integration (seeking ownership of increased control of a firm’s suppliers) ◦ Horizontal Integration (seeking ownership or increased control over competitors) ◦ Market Penetration (Seeking increased market share for present products or services in present markets through greater marketing efforts) ◦ Market Development (Introducing a present product or service into a new geographical area) ◦ Product Development (Seeking increased sales by improving products and services or developing new ones) ◦ Related diversification (adding new but related products/brands ◦ Unrelated diversification (adding new unrelated products.
. They are.Alternative Strategies for achieving Long-term objectives
There are over ten alternative strategies also called grand strategies that companies can pick from. services or brands.
customer service among others to other firms at a fee) ◦ Retrenchment/turnaround (regrouping through cost and asset reduction to reverse declining sales and profit ◦ Divestiture (Selling a division or part of an organization) ◦ Liquidation (selling all of a company’s assets in parts for their tangible worth)
Alternative Strategies for achieving Long-term objectives cont’d Related diversification (adding new but related products/brands
All selection of any of the above strategy for a company will be
. accounting. ◦ Joint venture (strategy that occurs when two or more companies for a temporary partnership or consortium for the purpose of capitalizing on some identified opportunity that is beyond the strength of any of the individual firms) ◦ Merger/Acquisition (A merger occurs when so firms of similar size unite to form one entity and an acquisition occurs when a larger firm purchases/acquires a smaller firm or vice-versa) ◦ Outsourcing (transferring the functional operations such as HR. services or brands. payroll.◦ ◦ Unrelated diversification (adding new unrelated products. marketing.
WEEK 8 – ORAL PRESENTATION ON THE CASE STUDY ON YAHOO
WEEK 9 .
Boston Box and Ansoff Matrix also exists
. Other tools like the SPACE matrix. mission and objectives coupled with information resulting from the external and internal environmental audit provide the basis fir generating and evaluating feasible alternative strategies Unless a desperate situation confronts a firm. alternative strategies will likely represent those that move the firm from its present position to a desired future position.WEEKS 10&11 . It seek to determine course of action that could best enable the firm to achieve its mission and objectives. The firm’s present strategies.STRATEGY ANALYSIS AND CHOICE
This involves making subjective decisions based on objective information. To conduct the strategic analysis. the SWOT matrix will be used.
Use strategies that enables optimal use of company’s strengths to capitalize on opportunities
Employ strategies that enables a firm to use its strength to avoid or reduce the impact of the external threats
Use strategies that improves works on the weaknesses and positions the firm in a position that enables it to take advantage of opportunities Employ defensive strategies and tactics directed towards reducing internal weaknesses and avoiding the impact of external threats on the organization
The Boston growth-share Box/matrix
The Boston growth-share Box/matrix cont’d
The Boston growth-share Box/matrix cont’d
.WEEK 12 .