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Business Policy and Strategic Management

Business Policy:
Business policy is set of rules for functions and the responsibility of management towards those functions. For example, management functions such as marketing, finance, HR, production etc will always have some predefined rules or guidelines and those rules are known as policy of that respective area. Business Policy defines the scope within which decisions can be taken in an organization. It primarily allows the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Meaning and Nature of Management: Meaning of Management: As per Peter Drucker "Management is a function, a discipline, a task to be done, and managers this practice this discipline, carry out the functions and discharge these tasks" As per Dalton McFarland "Management is a process by which managers create, direct, maintain and operate purposeful organizations through systematic, coordinated and co-operative efforts. Management is a process which is applicable to the different functions like marketing management, finance management, production management and strategic management. Strategic Management is primarily related to dealing with competition. It is that process which create competitive advantage for organization, so that organization can outperform the competitors in order to have dominance over market Strategic management is that process which guides the company successfully through all changes in the environment.

Strategy:
As said above, the word 'Strategy' has emerged from military as; 'means or methods adopted to defeat enemy'. Therefore strategy is an analysis of situation and then planning and implementation of activities to achieve desired goals or objectives. Business respond to adverse or hostile environment with strategy just like military respond to war. In business, 'Strategy' is considered as: A game plan by management to take position, conducts operation, attract customers and compete successfully; A comprehensive, unified or integrated plan and actions to achieve the desired business goals and objectives; A long-term plan or blue print to achieve desired image, direction and destination for organization; Page | 1

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An analysis, planning and implementation of actions or activities to take successfully organization out from any adverse scenario and put organization in the league of winners; and A plan adopted for survival, stability and growth of business

Strategies are formulated at corporate, business (i.e. business unit or division) and functional levels. The corporate strategies are formulated by the top managers. This includes business expansion plans, merger, acquisition, and new investment and divestments plans. Organizations' strategies can be mix of pro-active and reactive strategies. The pro-active strategies are those where organization takes the initiatives or acts as first mover like smart phone development by Apple. The reactive strategies are those where organization reacts to their competitors' actions like Samsung/Nokia's smart phones development in reaction to Apple's iPhone. A company's actual strategy is combination of partly pro-active (planned) and partly reactive strategy. Company Experiences, knowhow, objectives, strengths and weaknesses

These parameters provide Proactive or Planned Strategy

Pro- active or Planned Strategy Actual Strategy

Competitors Strategies, Market Changes

Require Changes in Planned Strategy

Reactive Strategy

Corporate Strategy
Corporate strategy is considered as growth design for a company. It describes the direction, pace timing of company's growth Followings are some general characteristics of a 'Corporate Strategy': Formulated by Top Management Long Term or Long Range: It is meant for long term future growth and profits Integrated: Consider all elements of business Flexible: Can be modified as per changed Environment Action Oriented: It should not be planning only, it should be action oriented planning Goal Oriented: It is for achieving organization long term objectives of growth, profitability and sustainability Purposeful: It is for making organization ready to cope-up to a competitive and complex business environment successfully Efficient: it does not include unnecessary activities and elements Synchronized: All activities of strategy are well coordinated Allowances for Uncertainties : Includes contingencies The following explains Nature and Scope or purpose of a corporate strategy. Serves as a growth design for organization Page | 2

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Ensures correct alignment of firm capabilities with environment Helps to build relevant competitive advantage It provides choice for products and markets organization should focus. It describes the businesses in which company wants to play a dominant role. It provides the well thought-out and organized responses to the business environment.

The Dynamics of Competitive Strategy

The organizations can survive by competing in the market; and, organizations can compete only when they formulate and implement an effective and competitive strategy. The competitive strategy can be formulated effectively by using Porter's five forces model, and by effectively looking at - strengths, weaknesses, threats and opportunities for the organization. The organization reply to competition dynamics is always happen in the form of strategic response of organisation internal environment to the external environment. Environment particularly external environment is dynamic, complex and uncertain. Therefore, the competitive strategy should also be equally dynamic to deal effectively with competition. Practically, it is an internal environment's strengths which respond to external environment's opportunities and to external environment's threats. The complexities and threats of external environment force organizations to remove internal weaknesses and shape the organization's competitive strategy The diagram below details about; how dynamics emerges in the competitive strategy?

Strengths: Employees Skill, R&D and Financial, etc

CAPTURE

Opportunities: Economic and Technical, etc

R E D U C E

Competitive Strategy

R E D U C E
Weaknesses: poor technology and Quality excess staff, etc

Threats: Competition, technology changes, etc

INCREASES

Strategic Management
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The term 'strategic management' is combination of strategy + management. This term refers to the forming a strategic vision, setting objectives, developing a strategy, implementing and executing the strategy. and then overtimes initiating whatever adjustments are required in the vision and objectives then implementing these adjustments.

Forming Vision and Setting Objectives Feedback: Making Adjustments Overtimes

Developing strategy to achieve Vision and Objectives

Implementing and Executing Strategy

Strategic management initiate with setting a mission, objectives and goals. Thereafter building a business portfolio (business model/product mix) accordingly and carrying the functional activities to achieve the set mission, objectives and goals.

Strategic Management Framework

The basic framework of strategic management involves five stages: Stage 1: In this stage, organization analyze about their present situation in terms of their Strengths, Weaknesses, Opportunities and Threats. Stage 2: In this stage, organizations setup their missions, goals and objectives by analyzing where they want to go in future. Stage 3: In this stage organization analyze various strategic alternatives to achieve their goals and objectives. The alternatives are analyzed in terms of what business portfolio/product mix to adopt, expansion, merger, acquisition and divestment options etc are analyzed to achieve the goals. Stage 4: In this organizations select the best suitable alternatives in line with their SWOT analysis Stage 5: This is implementation stage in which organization implement and execute the selected alternatives to achieve their strategic goals and objectives. Stage 1: Where are we now? Analysis of present situation Stage 2: Where we want to go? Setting goals and objectives for future

Stage 3: How can we get there? Analyses of various alternatives to achieve the goals and objectives

Stage 4: Which way is the best? Selecting best alternatives in line with strengths of organisation Page | 4

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Stage 5: How can we ensure Controls? Implementing and executing the selected alternatives and monitoring of the same overtimes Strategic Management Framework Importance of Strategic Management: Discover organization strengths and weaknesses Identify the available opportunities and possible threats Discover the objectives and goals in line with organizations strengths and available opportunities Implement changes to overcome weaknesses and manage the threats. Provide vision/mission or direction to future of organizations Build a dynamic and strong organization Help to achieve growing and stable organization

Strategic Decision Making

Decision making is a managerial process and it is a function of choosing a particular course of action out of several alternative courses for the purpose of achieving organization's objectives and goals. Decisions may relate to general day to day operations, can be major or minor. They may also be strategic in nature. Strategic decisions are different in nature than all other decisions which are taken at various levels of the organization during day-to-day working of the organizations. The major dimensions of strategic decisions are: o Strategic decisions require top-management involvement: Strategic decisions involve thinking in totality of the organizations and also there is lot of risk involved. Hence, problems calling for strategic decisions require to be considered by top management. o Strategic decisions involve the allocation of large amounts of company resources: It may require huge financial investment to venture into a new area of business or the organization may require huge number of manpower with new set of skills in them. o Strategic decisions are likely to have a significant impact on the long term prosperity of the firm: Generally the results of strategic implementation are seen on a long term basis and not immediately. o Strategic decisions are future oriented: Strategic thinking involves predicting the future environmental conditions and how to orient for the changed conditions. o Strategic decisions usually have major multifunctional or multi-business consequences: As they involve organization in totality they affect different sections of the organization with varying degree. o Strategic decisions necessitate consideration of factors in the firm's external environment: Strategic focus in organization involves orienting its internal environment to the changes of external environment.

Strategic Management Model

Strategic management tasks can be understood better by constructing a model known as strategic management model. Page | 5

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This model divides the strategic management tasks into three categories; 1. Strategy Formulation 2. Strategy Implementation 3. Strategy Evaluation

Forming Vision and Mission

Setting Objectives and Goals

Analysing and Developing Strategies

Implementing and Executing Strategies

Evaluating, Monitoring Implemented Strategies

Making Adjustments as per Evaluation

Strategy Formulation

Strategy Implementation Strategic Management Model

Strategy Evaluation

Organization formulates strategies by forming long term vision and objectives considering all their strengths and weaknesses and by looking into opportunities and threats in the environment. For example, Infosys is working with single mind mission to achieve numerouno position in software services sector, and do not have any objective to enter into computer hardware and telecommunication/ISP business. Once an organization is absolutely clear about their mission and objectives then it is easy to implement the formulated strategies. But, we all know business is very dynamic because it is governed by complex and uncertain external environment therefore, it is necessary that organization should evaluate their implemented strategies to make adjustments as per the environment needs with changing opportunities and threats of environment.

Vision, Mission and Objectives in Business

'Strategy Formulation' i.e. developing vision, mission, objectives and goals is the most important step of strategic management model. This step is considered as a path forming step, and provides the direction to organization for movement in future. Vision: There is a quote that 'great visionary can foresee the future in advance and take steps accordingly to be at forefront' Steve Jobs, Ex CEO of Apple Computer Inc. was one of the greatest visionary in computer industry. He and his organization worked on GUI and Multimedia applications of computer much before other started working on these. Finally, his efforts were vindicated and it is now well established that future in the computer and electronic devices would be more and more multimedia oriented. Apple exemplary products such as; iPod, iMac, iPod and iPhone great success are examples of his great vision which he foresaw around 30 years back. So we can conclude that; o Vision provides a road map to Company's future o Vision indicates the kind of company the management is trying to create for future. Page | 6

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o Vision specifics about company intention and capabilities to adapt to new technologies o Vision also specifies management policies towards customers and societies Strategic vision specifies primarily three elements; 1. Forming a mission statement that defines what business the company presently is in and communicates the essence of "who we are and where we are now?" 2. Using this mission statement as base to define long term path by indicating choices about "Where we are going?" 3. Finally, it communicates strategic vision in clear and committed term Strategic Vision has important purposes, such as; 1. Clearly provide the direction that company wants to follow 2. Identify the need of changing from existing direction or products, if stated in vision statement 3. Create passionate environment in the organization to steer the company with great excitement in selected direction. 4. Promote entrepreneurship 5. Help to develop mission statements How to develop a Strategic Vision? Think creatively about how to prepare company for future Explore the core idea of organization existence in future. For example, an airline company may have a vision to become low cost airline or best customer satisfaction airline or both Use intelligent entrepreneurship or best brains for forming vision Clearly define the direction in vision statement which company wants to follow. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty".

Mission:
Mission is an element of company's vision. Company management develops a vision based on their capabilities, experience and changes management foresee in future. Vision reflects more of long term aims and Mission reflects current or near-term aims. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty. But this charity might have a mission statement as "providing jobs for the homeless and unemployed" Mission primarily reflects what business we are in and what we do? A mission broadly describe organization present capabilities, customer focus and business activities. Mission statement of some popular organizations: Mission of Cadbury: "To attain leadership position in the confectionary market and achieve a strong presence in the food drinks sector" Mission of McKinsey & Co: "To help Business Corporation and governments to be more successful" Mission of Reliance Industries: To become major player in chemical business and grow in other growth oriented industries like infrastructure" As said above mission is a part of vision which describes "Where company wants to be in future?" Some of important features of mission are; It is an expression of company's vision It is an expression of company future position and growth ambition It tries to combine the expansion of existing business portfolio to the preferred future portfolio, where company wants to make its presence. Page | 7

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It provides a guiding principle and common purpose to each member of organization It provides foundation to the future aim of organization

Management advisors elaborate mission statement as guiding force to take organization in the planned direction. Government of India has various mission statements Make India a Developed Nation by 2050" Electricity to all by 2014" The statements like above keep reminding govt./people and organizations, strive to achieve the declared mission. Guidelines for formulation of Mission Statement Organization can not declare the mission just on some great whim and fancy, it should be based on organizations' existing capabilities and achievable milestones. Here are some guidelines for formulation of "mission" statement It should be based on existing business capabilities "Who we are and what we do?" It should follow the long term strategy principles Profit making should not be the only mission of organization It should be logical extension of business existing capabilities It should clearly and precisely present the future orientation of business It should includes achievable missions It should be stated in a form that it becomes the motivating force to every member of organization Mission statement once formed shall be communicated to every member of organizations It should include interest of customers and society Mission Statement "What business we are in?" can be different in the same organization depending upon function. Company AT&T Indian Oil Indian Railways Eastman Kodak Revlon What Business we are in? Production-oriented Answer Marketing-oriented Answer We operate a long-distance telephone company We produce oil and gasoline products We run a railroad We make cameras and films In the factory, we make cosmetics We provide multiple forms of reliable, efficient and inexpensive telecommunication services We provide various types of safe and cost effective energy We offer a transportation material handling system we help preserve beautiful memories in the Drugstore, we sell hopes

Vision and Mission statement definition: Vision: Outlines what the organization wants to be, or how it wants the world in which it operates to be. It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty." Page | 8

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Mission: Defines the fundamental purpose of an organization or an enterprise. In brief, it describes why it exists and what it does to achieve its vision. For example, the charity above might have a mission statement as "providing jobs for the homeless and unemployed". Vision and mission of Institute of Chartered Accountant of India: Vision Mission Recognize changes in economy and business The Indian Chartered Accountancy profession to environment be valued trustee of world class financial Recognize the path to success by acquiring skills competencies, good governance and and adapting to these changes competitiveness Recognize the opportunities for Chartered Accountants in emerging areas Recognize the institute role as a pro-active and flexible organization in equipping Chartered accountants with top quality education and values and make them world class advisor

Objectives and Goals

the term "objective and goals" set target of any particular aspect like profit and revenue growth, etc. Here are some common definitions of Objectives; Objectives arc performance targets which organizations want as result or outcomes in the specified periods Objectives achievements are used as benchmark of organization performance and success Objectives are formed from visions and mission statement of organizations Objectives are interchangeably used with goals but goals are defined as more precise and specific with closed ended attribute (in precise quantity form) whereas objectives are open ended for future states or outcome not as precise as goals. Objectives are for long term whereas goals are for short term Characteristics of Objectives: Objectives characterize business long-term prospective, such as: Facilitate to achieve mission and goals Set the basis for strategic decision making Clear the relationship of organization with environment Should be understandable by each member of organization Should be measurable and controllable Should be related to time frame Should be challenging Should be concrete and specific Should be formed within the constraints Should motivate people.

Strategic Levels in Organization

There are primarily three levels of strategies in the organization. 1. Corporate Level 2. Business Level 3. Functional Level Page | 9

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Corporate Level: Me corporate level of management consists of the chief executive officer (CEO), other senior executives, the board of directors, and corporate staff. These individuals occupy the top-committee of decision making within the organization. The CEO is the principal general manager. In consultation with other senior executives, the role of corporate-level managers is to oversee the development of strategies for the whole organization. This role includes defining the mission and goals of the organization, determining what businesses it should be in, allocating resources among the different businesses, formulating and implementing strategies that span individual businesses, and providing leadership for the organization. For example, strategies formed for Unilever Limited would be at corporate level. Business Level: A business unit is a self-contained division (with its own functions-for example, finance, purchasing, production, and marketing departments) that provides a product or service for a particular market. The principal general manager at the business level, or the business-level manager, is the head of the division. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses. Thus, whereas corporate-level general managers are concerned with strategies that span individual businesses, business-level general managers are concerned with strategies that are specific to a particular business. At GE, a major corporate goal is to be first or second in every business in which the corporation competes. Then the general managers in each division work out for their business the details of a strategy that is consistent with this objective. For example, strategies formed for Kwality Walls, a subsidiary of Unilever Limited would be at business level. Functional Level: Functional-level managers are responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on) that constitute a company or one of its divisions. Thus, a functional manager's sphere of responsibility is generally confined to one organizational activity, whereas general managers oversee the operation of a whole company or division. Although they are not responsible for the overall performance of the organization, functional managers nevertheless have a major strategic role: to develop functional strategies in their area that help fulfill the strategic objectives set by business- and corporate-level general managers. Moreover, functional managers provide most of the information that makes it possible for business- and corporate-level general managers to, formulate realistic and attainable strategies. Indeed, because they are closer to the customer than the typical general manager is, functional managers themselves may generate important ideas that subsequently may become major strategies for the company. Thus, it is important for general managers to listen closely to the ideas of their functional managers. An equally great responsibility for managers at the operational level is strategy implementation: the execution of corporate and business-level plans. For example, strategies formed for employee retention by HR manager at Kwality Walls would be at functional level. Corporate Level (Head office)

Business Level (Business Unit- I)

Business Level (Business Unit- II)

Business Level (Business Unit- III) Page | 10 Functional Level (Marketing/ Finance Managers)

Functional Level (Marketing/ Finance Managers)

Functional Level (Marketing/ Finance Managers)

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Characteristics of Strategic Management Decisions at Different Levels Characteristics Risks Involved Cost Involved Time Horizon Profit Potential Management Involved Type of Tasks Involved Corporate Level High High Long Range High Top Planning Level of Strategy Business Level Moderate Medium Medium Range Medium Medium to Top Planning and Operational

Functional Level Low Low Low Range Low Medium Operational

QUESTIONS: State with reasons which of the following statements is correct / incorrect: a) Strategies provide an integral framework for management to negotiate its way through a complex and turbulent external environment. b) Strategic management is not needed in non-profit organisations. c) Strategy is a substitute for sound, alert and responsible management. d) Strategies are perfect, flawless and optimal organisational plans. e) Strategic management is a bundle of tricks and magic. f) Corporate strategy is basically the growth design of the firm. g) All strategies emerge from corporate vision h) For a small entrepreneur vision and mission are irrelevant. i) Control systems run parallel with strategic levels. j) A company's strategy has always to be proactive in nature. k) Developing annual objectives & short-term strategies that are compatible with the selected set of long-term objectives are one of the major task of strategic management. Answers: a) Correct: Strategies are meant to fill in the need of enterprises for a sense of direction, focus and coherent functioning. They provide a systematic basis for the enterprise to stand its ground in the face of challenge and change as also quickly adjust to them. They obviate the occasions for impulsive and crisis decisions, false starts, misdirected moves, wasted resource uses and the like.

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b) Incorrect: Strategic management applies equally to profit as well as non-profit organizations. Though non-profit organizations are not working for the profit, they have to have purpose, vision and mission. They also work within the environmental forces and need to manage strategically to stay afloat to accomplish their objectives. For the purpose of continuity and meeting their goals, they also need to have and manage funds and other resources just like any other for profit organization. c) Incorrect: Strategy is not substitute for sound, alert and responsible management. Strategy can never be perfect, flawless and optimal. Strategies are goal-directed decision and actions in which capabilities and resources are matched with the opportunities and threats in the environment. A good management at the top can steer the organizations by adjusting its path on the basis of the changes in the environment. d) Incorrect: Strategy can never be perfect, flawless and optimal. It is in the very nature of strategy that it is flexible and pragmatic; it is art of the possible; it does not preclude second-best choices, tradeoffs, sudden emergencies, pervasive pressures, failures and frustrations. However, in a sound strategy, allowances are made for possible miscalculations and unanticipated external events. e) Incorrect: No, Strategic management is not a bundle of tricks and magic. It is much more serious affair. It involves systematic and analytical thinking and action. Although, the success or failure of a strategy is dependent on several extraneous factors, it can not be stated that a strategy is a trick or magic. Formation of strategy requires careful planning and requires strong conceptual, analytical, and visionary skills. f) Correct: Corporate strategy in the first place ensures the growth of the firm and ensures the correct alignment of the firm with its environment. It serves as the design for filling the strategic planning gap. It also helps to build the relevant competitive advantages. g) Correct: Vision explains where the organization is headed, so as to provide long-term direction, delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purpose. All strategies need to be drawn in the light of corporate vision, which is what the firm ultimately wants to become. h) Incorrect: Entrepreneur, big or small has to function within several influences external forces. Competition in different form and different degree is present in all kind and sizes of business. Even entrepreneur with small businesses can have complicated environment. To grow and prosper they need to have clear vision and mission. i) Correct: There are three strategic levels corporate, business and functional. Control systems are required at all the three levels. At the top level, strategic controls are built to check whether the strategy is being implemented as planned and the results produced by the strategy are those intended. Down the hierarchy management controls and operational controls are built in the systems. Operational controls are required for day-today management of business. j) Incorrect: A companys strategy is a blend of proactive actions and reactive actions by the management. Reactive actions are required to address unanticipated developments and environmental conditions. Thus, not every strategic move is the result of proactive and deliberate management actions. At times, some kind of strategic reaction or adjustments are required. k) Correct: A strategic manager has to set the long term objectives, future oriented plans by appreciating the competitive environment. Without bifurcating grand strategies and long-term Page | 12

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objectives into annual objectives and short-term strategies, implementation of the strategies is not possible. Dividing objectives, into annual plans help to move forward in a systematic manner.

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