BUSINESS POLICY AND

STRATEGIC MANAGEMENT

BY

Dr. A. SURESH KUMAR

Associate Professor
Department of Management
College of Business and Economics
Oda Bultum University
 Strategic thinking Vs Strategic management Vs Strategic planning
1. STRATEGIC THINKING
 Strategic thinking is a process whereby you learn how to make your business vision a reality
by developing your abilities in team work, problem solving, and critical thinking.
 It is a process that defines the manner in which people think about, assess, view, and create the
future for themselves and others.
 Strategic thinking allows creative thought to emerge, which should then be accompanied by
systematic analysis to determine what should actually be done.
 Strategic thinking is grounded in a strong understanding of the complex relationship between the
organization and its environment.
• Strategic thinking is a tool to help you;
o Confront change,
o Plan for and make transitions, and
o Visualize new possibilities and opportunities.
• Organizations can encourage strategic thinking through;
- Training,
- Rewards systems,
- Integrating elements of strategic thinking into the strategy making process, and
• Encouraging risk taking and innovation.
2. STRATEGIC MANAGEMENT
• Strategic management can be defined in various ways.
• Strategic management is;
 The set of managerial decisions and actions that determines the long-run performance of an
organization. It includes environmental scanning, strategy formulation, strategy implementation,
evaluation and control.
 A stream of decisions and actions which leads to the development of an effective strategy or
strategies to help achieve corporate objectives. According to this definition, the end result of
strategic management is a strategy or a set of strategies for the organization.
 The process of managing the pursuit of the organization’s mission while managing the
relationship of the organization to its environment; especially with respect to environmental
stakeholders and the major constitutes in its internal and external environments that affect the
actions.
 The set of activities related to the formulation and implementation of strategies to achieve
organizational objectives.
 The emphasis in strategic management is on those general management responsibilities
which are essential to relate the organization to the environment in which a way that its
objectives may be achieved.
 The process of specifying an organization's objectives, developing policies and plans to
achieve these objectives, and allocating resources so as to implement the plans.
 It is the highest level of managerial activity, usually performed by the company's Chief
Executive Officer (CEO) and executive team. It provides overall direction to the whole
enterprise.
• Nature/ characteristics of strategic management
 Strategic management as a process
 Top management function
 General management approach
 Relating organization to environment
 Long-term issues
 Flexibility
 Innovation
2. STRATEGIC PLANNING
 Strategic planning is the process of determining what an organization intends to be in the
future and how it will get there.

 Involves determining the required actions to achieve a desired vision considering the
present state of an organization

• A strategic plan:

 Is a road map to lead an organization from its present state to its desired medium or long
term future state
• Specifies the mission, vision, goals, strategies and objectives.
• A Good Strategic Plan should;

 Address critical performance issues

 Create the right balance between what the organization is capable of doing vs. what the
organization would like to do

 Cover a sufficient time period to close the performance gap

 Visionary – convey a desired future end state

 Flexible – allow and accommodate change

 Guide decision making at lower levels –operational, tactical, individual

• The strategic planning process
• Steps include:

1. Analyzing the present environment – SWOT (strength, weakness, opportunity &

threats)

2. Providing a vision statement

3. Refining vision into goals

4. Determining strategies using the outcomes of SWOT analysis and specified goals

5. Formulating concrete and measurable objectives from strategies

6. Communicating and reviewing the strategic plan

 CONCEPT OF STRATEGY AND POLICY
• What is Strategy?
• The term strategy is derived from the Greek “strategos/strategia”, meaning “general or art of being a general”.
In a military sense, strategy involves the planning and directing of battles or campaigns on a broad scale, that
is, the responsibility of the general.
• Definition of Strategy
 It is a tool to organize & allocate an organization’s resources in a viable way based on its internal
competencies & shortcomings, anticipated changes in the environment.
 It is the use of entity’s resources in the pursuit of its objectives against competition from rival organizations.
 It is an integrated and coordinated set of commitments and actions designed to exploit core competencies and
gain a competitive advantage.
• Thus, the main role of strategy is how to accomplish or achieve objectives by using the organization’s
resources & taking into consideration the external environment.
• Generally, strategy is:
 A tool to implement policy
 The means used to achieve the ends / objectives
 A future plan that guides the scope & direction of an organization
 Unified plan: it ties all the parts of the enterprise together
 Comprehensive plan: it covers all major aspects of the enterprise
• Integrated plan: all parts of the plan are compatible with each other & fit together well
• DEFINITION OF POLICY

• Policy is a type of plan which involves a set of specific rules or guidelines which directs the decision making of the
organization. It is usually formal or written.
• In short, a policy is a set of guiding principles, an acceptable practice, or a rule intended to influence organization
decision-making.
• In generally;

 Policy is rules or guidelines;

 Policy is an organization’s principles;

 Policy sets out the way that things are done;

 Policy creates a framework for the way we do our work;

 Policy sets the standards for an organization;

 Policy arises from best practice.

 Policy restricts the freedom of action and it is generally expressed in qualitative, conditional and general way.
• Types of policy
• Policies should express and embody society’s needs and values. The function of
managers (executives) is leadership and guidance of an organization. In order to lead and
guide the organization efficiently, managers have to set up policies for all levels, from the
highest to the lowest.

1. General policies: General policies are statements of principles that guide the
organization. They are broad and comprehensive; and basic to the direction of the
company. They decide questions involving geographical locations, product lines,
product distribution, diversification, decentralization.

2. Specific policies: As each unit or department has its own objectives, the executive must
formulate policy keeping these in mind. Hiring or discharging employees, vacations,
extension of credit to customers, restrictions on inventories, and insurance would all
come under minor policies.
• FEATURES OF POLICY:

• An effective policy must have following features:

a) Specific: Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.

b) Clear: Policy must be unambiguous. It should avoid use of jargons and

connotations. There should be no misunderstandings in following the policy.

c) Reliable/Uniform: Policy must be uniform enough so that it can be

efficiently followed by the subordinates.
d) Appropriate: Policy should be appropriate to the present organizational goal.

e) Simple: A policy should be simple and easily understood by all in the organization.

f) Inclusive/Comprehensive: In order to have a wide scope, a policy must be

comprehensive.
g) Flexible: Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the line
managers use them in repetitive/routine scenarios.
 The difference between strategy and policy
Basis for Strategy Policy
Comparison
Meaning Strategy is a comprehensive plan, made to Policy is the guiding principle that helps the
accomplish the organizational goals. organization to take logical decisions.

What is it? Action plan Action principle

Nature Flexible Fixed, but they allow exceptional situations

Related to Organizational moves and decisions for the Organizational rules for the activities which are
situations which have not been encountered repetitive in nature.
previously.

Orientation Action Thought and Decision

Formulation Top Level Management and Middle Level Top Level Management
Management
Approach Extroverted Introverted

Describes Methodology target What should be done and what should not be
done.
• STRATEGIC DECISION
• A strategic decision refers to the identification, evaluation and selection of the
best strategy that increases the likelihood of achieving organizational goals.

• It is a selection of the best one out of the pool of available strategic

alternatives to achieve organizational goals and objectives most effectively.
a. Affect the Firm’s Long-Term Prosperity: Strategic decisions commit the
firm for a long time, typically five years. However, their impact often lasts
much longer. Once a firm has committed itself to a particular strategy, its
image and competitive advantages usually are tied to that strategy. Firms
become known in certain markets, for certain products, with certain
technologies. They would jeopardize their previous gains if they shifted from
these markets, products, or technologies by adopting a radically different
strategy.

b. Future Orientation: Strategic decisions are based on what managers forecast

rather than on what they know. In such decisions, emphasis is placed on the
development of projections that will enable the firm to select the most
promising strategic options.
c) Multi-functional or Multi business consequences: Strategic decisions have
complex implications for most areas of the firm. Decisions about such
materials as customers mix, competitive emphasis, or organizational structure
necessarily involve a number of the firm’s strategic business units (SBUs),
divisions, or program units. All of these areas will be affected by allocations or
reallocations of responsibilities and resources that result from these decisions.
d) Require considering External Environment: All business firms operate in
an open system. They affect and are affected by external conditions that are
largely beyond their control. Therefore, to successfully position a firm in
competitive situations, its strategic managers must look beyond its operations
by “thinking outside of the box.”
 APPROACHES TO STRATEGIC DECISION MAKING
• There are three approaches to strategic decision making. These are:

a. Entrepreneurial approach

b. Adaptive approach

c. Planning approach

1. Entrepreneurial approach

• Entrepreneurial approach is an approach in which strategy is formulated mainly by a strong visionary chief executive
who actively searches for new opportunities, is heavily oriented toward growth, and is willing to make bold strategies
rapidly. Strategy is made by one powerful individual who has entrepreneurial competencies like innovation and risk
taking.

• The entrepreneurial searches for new mode are most likely to be found in organizations that are young or small, have a
strong leader, or are in such serious trouble that bold are their only hope.
2. Adaptive approach

• Adaptive approach is an approach to strategy formulation that emphasizes taking small incremental steps,
reacting to problems rather than seeking opportunities, and attempting to satisfy a number of organizational
power groups.

• It is more appropriate for dealing with complex and changing environments. The adaptive mode is most
likely to be used by managers in established organizations that face a rapidly changing environment and yet
have several coalitions, or power blocks, that make it difficult to obtain agreement on clear strategic goals
and associated long-term plans.

• The adaptive mode is where managers create reactive solutions to existing problems, rather than a proactive
search for new opportunities. Simply wait on issues to arise.
• It is a fragmented approach to strategic decision making. Because of the lack of directed focused
development, there is generally a lack of clarity and consensus on strategic goals.
3. Planning approach

• The planning approach of strategic decision making is characterized by the systematic gathering of
relevant information for situation analysis, the generation of feasible alternative strategies, and the
rational selection of the most appropriate strategy.

• With the planning approach, executives often utilize planning specialists to help with the strategic
management process. The ultimate aim of the planning approach is to understand the environment
well enough to influence it. The planning approach is most likely to be used in large organizations
that have enough resources to conduct comprehensive analysis, have an internal situation in which
agreement is possible on major goals, and face an environment that has enough stability to enable
the formulation and implementation of carefully conceived strategies.

• In summary, it is a proactive search for new opportunities and the reactive solution of existing
problems.
 LEVELS OF STRATEGIES
• In a multi-business enterprise, there would be three levels of strategy, viz., – corporate strategy, business strategy and
functional strategy.

a. Corporate Strategy: Corporate strategy is the long-term strategy encompassing the entire organization. Corporate
strategy addresses fundamental questions such as what is the purpose of the enterprise, what business/businesses it
wants to be in (portfolio strategy) and how to expand/get into such business/businesses (for example– by establishing
greenfield enterprises or by M&A’s). Corporate strategy is formulated by the top level corporate management (board of
directors, CEO, and chiefs of functional areas).

b. Business Strategy: sometimes called Competitive Strategy, is concerned with decisions pertaining to the product mix,
market segments and directional competitive advantages for the SBU. While corporate strategy decides the business
portfolio (i.e., the types of business), the competitive strategy decides the strategy/strategies to succeed in the chosen
business/businesses. SBU strategy has to conform, obviously, to the corporate philosophy and strategy. In short, “the
SBU-level strategic management is the management of an SBU’s effort to compete effectively in a particular line of
business and to contribute to overall organizational purposes.
c. Functional Strategy: Functional-level strategies are strategies for different functional
areas like production, finance, personnel, marketing, etc. In other words, “functional- level
strategic management is the management of relatively narrow areas of activity, which are of
vital, pervasive, or continuing importance to the total organization.” Functional-level
strategy is the responsibility of functional area heads.
 THE STRATEGIC MANAGEMENT PROCESS
• The strategic management process means defining the organization’s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.

• Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises its competitors; and fixes goals to meet the
entire present and future competitor’s and then reassesses each strategy.
• Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing

and providing information for strategic purposes. It helps in analyzing the internal and external
factors influencing an organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve it.

2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.

4. Strategy Evaluation and control- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are: appraising internal and
external factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational strategy as well
as its implementation meets the organizational objectives.
 The Business Vision, Mission, Goals and Objectives
• An organization without mission, vision and objectives is not an organization; it is simply a collection of individuals/
resources.”
1. What is Vision?
 Vision defines the desired or intended future state of an organization or enterprise in terms of its fundamental objective
and/or strategic direction.
 It outlines what the organization wants to be, or how it wants the world in which it operates to be.
 Whether for all or part of an organization, the vision statement answers the question, “Where do we want to go?” Vision
statement also answers the question “What do we want to become?”
 While a vision statement doesn’t tell you how you’re going to get there, it does set the direction for your business
planning.
 Unlike the mission statement, a vision statement is for you and the other members of your company, not for your
customers or clients.
 A vision usually precedes the mission statement.
 It is usually short, concise and preferably limited to one sentence.
• In short, vision statement;

 Is a statement about a company’s long-term direction;

 Hope for the reality to be;

 Desired situation opposing the existing situation;

 Not realized in short or one’s life time;

 Keeps an organization moving forward;

 Should be a description of the desired outcome of the strategic plan;

 Purpose of Vision

 Shared vision is an initial force that brings people together.

 Clearly articulated vision can provide energy, momentum and strengths to individuals.

 It inspires stakeholders.

 It is life-blood of an organization.

 It helps to see what you are working towards.

 It provides bases for partnership and incentive to work through internal conflict.
• It binds an organization together in times of crises.
 Features of an effective vision statement include:

 Clarity and lack of ambiguity

 Vivid and clear picture

 Description of a bright future

 Memorable and engaging wording

 Realistic aspirations

 Alignment with organizational values and culture

 WHAT IS BUSINESS MISSION?
• Historically mission is associated with Christian religious groups; indeed, for many
years, a missionary was assumed to be a person on a specifically religious mission. The
word "mission" dates from 1598, originally of Jesuits sending "missio", Latin for "act of
sending" members abroad.

• Mission defines the fundamental purpose of an organization or an enterprise, succinctly

describing why it exists and what it does to achieve its Vision.

• Mission is a very broad and general statement about the basic purpose of the
organization.

• It is a declaration of organization’s purpose or clarifies the purpose.

 • Mission is:

 General statement about the basic purpose of the organization

 The description of an organization’s reasons for existence,

 Fundamental purpose Clarifies/ declares the purpose

 Defines company’s business; Product/ market; Territory/ geography

 The guiding principle that drives the processes of goal and action plan formulation, “a
pervasive, although general, expression of the philosophical objectives of the enterprise.”

 Should focus on “long – range economic potentials, attitudes toward customers, product and
service quality, employee relations, and attitudes toward owners.”

 Provides identity, continuity of purpose, and overall definition.

 1. CHARACTERISTICS OF A GOOD MISSION STATEMENTS

• In order to be effective, a mission statement should possess the following seven characteristics.

• Mission statement should be

 Feasible: a mission should always aim high but it should not be an impossible statement. In addition it
should be realistic and achievable. Its followers must find it to be credible. But feasibility depends on the
resources available to work towards a mission.

 Precise: should not be so narrow to restrict the organization’s activities nor should it be too broad to make
itself meaningless.

 Clear: should be clear enough to lead to action and should not be a high sounding set platitudes meant for
publicity purposes.

 Motivating: should be motivating for members of the organization or being its customers.
 Distinctive: the indiscriminate one (random, arbitrary) is likely to have little impact. If all defined
their mission in a similar fashion, there would not be much of a difference among them. If defined
as providing value for money, for years it created an important distinction in the public mind.
 Indicate major components of strategy: along with the organizational purpose should indicate the
major components of the strategy to be adopted.
 Indicate how objectives are to be accomplished: Besides indicating the broad strategies to be
adopted, it should also provide clues regarding the manner in which the objectives are to be
accomplished.
 COMPONENTS OF A MISSION STATEMENT
 Customer: Who are the firm’s customers?

 Products or services: What are the firm’s major products or services?

 Markets: Geographically, where does the firm compete?

 Technology: Is the firm technologically current?

 Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness?

 Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?

 Self-concept: What is the firm’s distinctive competence or major competitive advantage?

 Concern for public image: Is the firm responsive to social, community, and environmental concerns?

 Concern for employees: Are employees a valuable asset of the firm?

 THE PROCESS OF DEVELOPING A MISSION STATEMENT
• A clear mission is needed before alternative strategies can be formulated and implemented.
• A widely used approach to developing a mission statement is:
1. Ask managers themselves to prepare a mission statement for the organization.
2. A facilitator, or committee of top managers, then should merge these statements into a single document and distribute
this draft mission statement to all managers.
3. A request for modifications, additions, and deletions is needed next, along with a meeting to revise the document.
4. To the extent that all managers have input into and support the final mission statement document, organizations can
more easily obtain managers' support for other strategy formulation, implementation, and evaluation activities.
Thus the process of developing a mission statement represents a great opportunity for strategists to obtain needed support
from all managers in the firm.
• Mission statements could be formulated on the basis of the organizational purpose that
the entrepreneur decides in the initial stages of an organizations growth.
• A mission statement once formulated, should serve the organizations for many years. But
mission statement changes when the external environment changes drastically; firms
diversify and increase in their scope of activities; the firm introduces new way of doing
business (BPR); top management decides to change the direction of the firm.
 IMPORTANCE OF MISSION STATEMENTS
 Unanimity of purpose within the organization
 Basis for allocating resources
 Establish organizational climate
 Focal point for direction
 Translate objectives into work structure
 Cost, time and performance parameters assessed and controlled
 Most companies are now getting used to the idea of using mission statements.
• Small, medium and large firms in Pakistan are also realizing the need and adopting mission
statements.
 GOALS AND OBJECTIVES

• The terms “goals and objectives” are used in a variety of ways, sometimes in a conflicting
sense. The term “goal” is often used interchangeably with the term “Objective”. But some
authors prefer to differentiate the two terms.

• A goal is considered to be an open-ended statement of what one wants to accomplish with

no quantification of what is to be achieved and no time criteria for its completion.

• For example, a simple statement of “increased profitability” is thus a goal, not an

objective, because it does not state how much profit the firm wants to make. Objectives
are the end results of planned activity.
• They state what is to be accomplished by when and should be quantified. For example,
“increase profits by 10% over the last year” is an objective. As may be seen from the
above, “goals” denote what an organization hopes to accomplish in a future period of
time.

• They represent a future state or outcome of the effort put in now. “Objectives” are the
ends that state specifically how the goals shall be achieved. In this sense, objectives make
the goals operational.

• Objectives are concrete and specific in contrast to goals which are generalized. While
goals may be qualitative, objectives tend to be mainly quantitative, measurable and
comparable.
Difference between Goals and Objectives
Following are some distinctions among these terms:

Goals Objectives

General Specific

Qualitative Quantitate, measurable

Broad organization–wide Narrow targets set by operating

target divisions
Long term results Immediate, short term results
• Some of the areas in which a company might establish its goals and objectives are:
 Profitability (net profit)

 Efficiency (low costs, etc)

 Growth (increase in sales etc)

 Shareholder wealth (dividends etc)

 Utilization of resources (return on investment)

 Market leadership (market share etc)

 STRATEGIC MANAGEMENT: MERITS AND DEMERITS
• Advantages of Strategic Management:

• The process of strategic management is a comprehensive collection of different types of continuous activities
and also the processes which are used in the organization. The strategic management is a way to transform
the existing static plan in a proper systematic process. The strategic management can have some immediate
changes in the organization.

a. Making better future: There is always a difference between the reactive and proactive actions. When a
company practices the strategic management the company will always be on the defensive side and not
on the offensive end. You need to come out victorious in the competitive situation and not be a victim of
the situation. It is not possible to foresee each and every situation but if you know that there are chances
of certain situations then it is always better to keep your weapons ready to fight the situation.
b. Identifying the directions: The strategic management essentially and clearly defines the
goals and mission of the company. The main purpose of this management is to define realistic
objectives and goals this has to be in line with the vision of the company. The strategic
management provides a base for the organization on the basis of which progress can be
measured and on the basis of the same, the employees can be compensated.

c. Better business decisions: It is important to understand the difference between a great idea
and a good idea. If you do have a proper and clear vision of your company then having a
mission and methods to achieve the mission always seems to be a very good idea. It turns into a
great idea when you decide what is the type of project that you want to invest your money; how
do you plan to invest your time and also utilize the time of your employees. Once you are clear
with your ideas about the project and the time each of your employee and yourself will have to
allocate, you will need to focus your attention on the financial and human resources.
d. Longevity of the business: The times are changing fast and there are dynamic changes happening every
day. The industries worldwide are changing at a fast pace and hence survival is difficult for those
companies which do not have a strong and perfect base in the industry. The strategic management ensures
that the company has a thorough stand in the related industry and the experts also make sure that the
company is not just surviving on luck and better chances or opportunity. When you look at various studies
you would know that the industries which are not following the strategic management will survive for not
more than five years. This suggests that the companies should have a powerful focus on the longevity of
the business. This suggests that without strategic management, it is not possible for a company to survive
in the long run.

e. Increasing market share and profitability: With the help of strategic management it is possible to
increase the market share and also the profitability of the company in the market. If you have very focused
plan and strategic thinking then it is possible for all the industries to explore better customer segments,
products and services and also to understand the market conditions of the industry which you are
• The Disadvantages of Strategic Management

a. Anticipate the future environment: One of the significant disadvantages of strategic

management is that it requires the organization to anticipate the future environment in order to
build up plans, and, as we all know, anticipating the future is not a simple task. The conclusion is
that if the future does not unfold as anticipated, then it may cause undermine the strategy taken.

b. It is expensive: In the not-for-profit sector, there are many organizations that cannot afford to
employ an external consultant to help them build up their strategy. Currently, there are many
volunteers that help smaller organizations and also funding agencies that will support the cost of
employing external consultants in forming a strategy.
c. Long-term benefits rather than immediate results: It is designed for providing long-term benefits
rather than short-term results. Most of the time, it focuses on long-term goals. If you are looking at
the strategic management process to discuss an immediate crisis within your organization, it won’t. It
always makes sense to discuss the immediate crises prior to allocating resources to the strategic
management process.

d. Complex process: The strategic management involves various types of continuous process which
checks all types of important critical elements. This consists of the internal and external
environments, long-term and short-term objectives, strategic control of the company’s resources, and
last but not least, it also has to look at the organizational structure. This is a long process because a
single variation in one element can affect all the factors.