Business Policy

&
Strategic Management
Week -1
Faculty
Gp Capt(Dr.)RM Saxena
 CONCEPT OF STRATEGY
&
STRATEGIC MANAGEMENT
 STRATEGY
• GREEK WORD STRATEGIA – Science of guiding & Directing

• COMPLEX PROCESSOF DETERMINING LONG TERM GOALS &

COURSE OF ACTIONS NEEDED TO BE CARRIED OUT, ALLOCATION
OF RESOURCES FOR CARRYING OUT THESE GOALS.
MOVING FROM WHERE YOU ARE TO WHERE YOU WANT TO BE IN
NEAR FUTURE THROUGH A SERIES OF DECISIONS AND ACTIONS.

• PRE DETERMINED COURSE OF ACTION

• HAS DEFINITE DIRECTION

• SUSTAINABLE COMPETITIVE ADVANTAGE: Delivering superior value to

target customer at the same cost or delivering equal customer
value at lower cost relative to your competitor, on a continuing basis.
 Key strategic Questions
• Where are we now?

• Where are we headed? In next few years?

• What are we doing about it?

 Strategic Management
• Is that set of managerial decisions &
actions that determines the long-run
performance of a corporation.
It includes
• Environmental Scanning(Ext.& Int.)
• Strategy Formulation
• Strategy Implementation &
• Evaluation & control
 HOW HAS STRATEGIC MANAGEMENT
EVOLVED
• PHASE I: BASIC FINANCIAL PLANNING : Seeking better operational control
by trying to meet budget

. PHASE II : FORECAST BASED PLANNING : Seeking more effective planning

for growth by trying to predict the future beyond next year.

. PHASE III : EXTERNALLY ORIENTED PLANNING ( STRATEGIC PLANNING )

: Seeking increased responsiveness to markets and competition by trying to think
strategically.

. PHASE IV : STRATEGIC MANAGEMENT : Seeking a competitive advantage by

considering implementation ,evaluation and control when formulating strategy.

. PHASE V : INTERNATIONAL / GLOBAL STRATEGIC MANAGEMENT : Managing

a worldwide competitive advantage
Initiation of Strategy: Triggering
Events
• New CEO
• External Intervention-Bank refuses loan,
Customer complaint.
• Threat of change in ownership.
• Performance Gap
• Strategic Inflection point.-major change in
Technology,Regulation or customer
preference.
 STRATEGIC MANAGEMENT
ESTABLISHMENT OF VISION & MISSION statements, Business Definition
STRAT. INTENTS Adopting Business Model, Setting Goals & Objectives

FORMULATION of
Conducting SWOT, Formulating CORPORATE &
STATEGIES BUSINESS LEVEL Strategies, Strategic Analysis
Strategic Choice, Strategic Plan.

IMPLEMENTATION
OF STRATEGIES Activating Strategies, Designing Structure, Systems&
Processes, Behavioral & Functional implementation
And Operationalising strategies

REVIEW,EVALUATION&CONTROL
Performing Strategic Evaluation, Exercising Strategic
Control and Reformulating Strategies
 STRATEGIC MANAGEMENT
ENVIRONMENT STRATEGY STRATEGY EVALUATION
SCANNING FORMATION IMPLEMENTATION & CONTROL
MISSION
(Reason for existence)
EXTERNAL
SOCIETAL OBJECTIVES
(What results to
TASK
accomplish & by
ENVIRONMENTAL when )

STRATEGIES
INTERNAL (Plan to achieve
Mission&Objectives)
STRENGTS
PROGRMS
WEAKNESSES POLICIES
Activities needed
(Broad guidelines
• structure To accomplish plans
for decision
•Culture ( Beliefs, Making)
BUDGETS
expectations,Values )
Cost of
• Resourses, Skills, programs
competencies,Knowledge
PROCEDURE PERFORMANCE
Sequence of Actual results
steps needed
to do the job

FEEDBACK / LEARNING
 VISION

• Future aspirations that lead to an inspiration

• Basic & at the top of hierarchy of strategic intents
• Aspirations expressed as strategic intent should lead to
an end.
• This is what a person or an organization would
ultimately like to attain in the near future.
• A vision is generally more dreamt than it is articulated
• By its nature it may be as good as a dream, yet it is a
powerful motivator to action.
 A FEW VISION STATEMENTS
VISION 2001 0F BHEL
A world-class , innovative , competitive and profitable
Engineering enterprise providing total business solutions.

VISION OF CANARA BANK

To emerge as the best bank in customer service,
profitability , productivity and innovations.

VISION OF IOC
Indian Oil aims to achieve international standards of excellence
in all aspects of energy and diversified business with focus on
Customer delight through quality products & services
 MISSION
• It is purpose / reason behind existence of any organization

• Derived from VISION and reflects the corporation’s philosophy , identity,

character and image which helps to achieve the vision.

• When defined explicitly, provides enlightenment to insiders and outsiders

on what the organization stands for.

• Many strategists/consultants contribute to the building up of mission statements.

CHARACTERISTICS OF A MISSION SATEMENTS

FEASIBLE

PRECISE

CLEAR

MOTIVATING

DISTINCTIVE

INDICATES MAJOR COMPONENTS OF STRATEGY

INDICATES HOW OBJECTIVES ARE TO BE ACHIEVED

HOW MISSION STATEMENTS ARE FRMULATED
Derived from particular set of tasks and priorities and reflects
corporate philosophy

Executive committee is setup to formally discuss

Help of consultants also taken for an in-depth analysis of an

organization and to suggest an appropriate Mission statement

A Mission statement once formulated should serve an organization

for many years

As the organization grows with time and goes on adding new

products, services, technologies and markets, there may even be a
need for revising its Mission statements as well.
 FEW MISSION STATEMENTS
• BHEL
To be a leading engineering enterprise providing quality
systems goods and services in the field of Energy,
Transportation , Industry, Infrastructure and other
potential areas
• RANBAXY
To become research based International pharma
company
• UTI
To keep the common man in sharper focus to encourage
savings and investment habits among them.
Initiation of Strategy: Triggering
Events
• New CEO
• External Intervention-Bank refuses loan,
Customer complaint.
• Threat of change in ownership.
• Performance Gap
• Strategic Inflection point.-major change in
Technology,Regulation or customer
preference.
 VISION

• Future aspirations that lead to an inspiration

• Basic & at the top of hierarchy of strategic intents
• Aspirations expressed as strategic intent should lead to
an end.
• This is what a person or an organization would
ultimately like to attain in the near future.
• A vision is generally more dreamt than it is articulated
• By its nature it may be as good as a dream, yet it is a
powerful motivator to action.
 GOALS & OBJECTIVES
GOALS:
• What an org. hopes to achieve/accomplish in a future period of time. Represent future
state or outcome of an effort put in now.

OBJECTIVES:
• Ends that tell how goals shall be achieved
• Define org’s relationship with Environment;
• Help org to achieve VISION & MISSION;
• Provide basis for Strategic Decision making;
• Provides standards for performance appraisals,

• OBJECTIVES: GOALS
- Concrete & specific Generalized
Make goals operational

-Quantitative, measurable Qualitative

& comparable

- Short Term Long Term( Org. translates its purpose

into long term goals )
 OBJECTIVE SETTING
• Understandable
• Concrete & Specific ( Say 10% increase in sales )
• Periodicity :Related to time frame. Long Term, Medium & Short term
• Measurable & Controllable
• Challenging
• Diff. Objectives must correlate with each other
• Should be set within constraints
• Should cover all aspects of functioning.
• Verifiability: basis on which to decide whether Objective met or not.
• Reality: Operational objective not the broad official objectives
• Quality: Capable enough to provide direction and tangible basis
for evaluation.
EX
Profit: ROI, Net profit as % of sales, Return on shareholders capital.
Marketing: Sales volume, Market segment, Customer service promotion
Growth: Output, Sales T/O, Investment
HR: Training, Welfare IR
Social Responsibility: Environment, Community Service, Rural Development etc..
HIERARCHY OF STRATEGY

CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONAL
STRATEGY
 Some terms
• Strategy Implementation: process by
which strategies & policies are put into
action through development of programs,
budgets & procedures.
• Program: is a statement of steps needed
to accomplish a single use program.
• Procedure/SOP: Sequential steps
/techniques that describe in detail how a
particular job is to be done.
 STRATEGIC MANAGEMENT
PROCESS
IV
INTERNAL’
ANALYSIS
.STENGTHS
.WEAKNESSES

I II III V VI VII VIII

IORG. REVIEW
ORG. REVIEW SELECTION GENERATION
. MISSION CURRENT BOARD OF OF & IMPLEMENT
. OBJECTIVES PERFORM STRATEGIC REDEFINE EVALUATION BEST
DIRECTORS
.STRATEGIES - ANCE. FACTORS . MISSION OF
. POLICIES
& .OBJECTIVES STRATEGIC ALTERNATIVE
TOP. MGMT
ALTERNATIVES

IV REWORK AS
EXT. ENV. NEEDED
ANALYSIS IX
. OPP. MONITORING
. THREATS
 STRATEGIC DECISION
• Characteristics: Rare ,Consequential & directive

• SETTING REALISTIC GOALS: Challenging but achievable

• RATIONALITY: Exercising best choice among alternatives

• CREATIVITY: Decision creative and original through brainstorming

• VARIABILITY : Every situation is unique

• DEMOGRAPHIC FACTORS: Age. Education, Intelligence, Values

Cognition. risk taking and creativity

• GROUP DECISION MAKING: Participation

 Mintzberg’s Modes of Strategic
Decision Making
• Entrepreneurial:Powerful
Individual,Amazon-Jeff Bezos
• Adaptive: Encyclopedia Brittannica- Door
to door.
• Planning:Proactive&reactive,
Systematic like IBM complete set of servive
instead of only hardware.
• Logical incrementalism: Synthesis of
all,probes for best
 How To Make Better Strategic
Decisions?
• Evaluate current performance.
• Review Corporate Governance: BOD, Top mgt.
• Scan External Environment: Opp. & threats
• Scan Internal Environment
• Analyse Strategic Factors: pinpoint problem
area.
• Generate ,evaluate.& select best Alternative
• Implement
• Evaluate
 Chapter 2

Corporate Governance & Social

Responsibility
 Introduction
• Corporate:is a mechanism established to allow different
parties to contribute capital, expertise & labour for mutual
benefit.
Corporate Governance (CG)
– Set of mechanisms used to manage the relationships (and
conflicting interests) among shareholders,Mgt, & BOD and to
determine and control the strategic direction and
performance of organizations (aligning strategic decisions
with company values)
• Effective CG is of interest to nations as it reflects societal
standards
– Firms’ shareholders are treated as key stakeholders as they
are the company’s legal owners
– Effective governance can lead to competitive advantage
The Board of Directors (BOD)
• Introduction
– Group of shareholder-elected individuals
(usually called ‘directors’) whose primary
responsibility is to act in the owners’
interests by formally monitoring and
controlling the corporation’s top-level
executives
 The Board of Directors (BOD)
• As stewards of an organization's resources, an effective
and well-structured board of directors can influence the
performance of a firm
– Oversee managers to ensure the company is operated in
ways to maximize shareholder wealth
– Direct the affairs of the organization
– Punish and reward managers
– Protect shareholders’ rights and interests
– Protect owners from managerial opportunism
• Three director classifications: Insider, related outsider and
outsider
• Affiliated Director: outsiders who handle legal/insurance
work, retired, family members of the founder
 Responsibilities of BOD
• 1.setting corporate Strategy,direction
vision/mission.
• 2.Succession: Hiring & firing CEO,Top
mgt.
• 3.Controlling, monitoring top mgt.
• 4.Reviewing & approving the use of
resources.
• 5. Caring for Stockholder interests.
 Role OF BOD in St. MGT.
• Monitor,Evaluate,Initiate & determine
• Degree of involvement:L---H
• Phantom :nil
• Rubber Stamp: Recommends
• Minimal review
• Nominal Participation
• Active Participation
• Catalyst
 BOD contd.
• Direct interlocking directorate:occurs
When two firms share a director or when
an executive of one sits on the BOD of
another.
• Indirect interlock occurs when two
corporations have directors who also
serve on the board of the third say bank.
• BOD generally have 10 to16 members.
 CG &Top Management
• CEO:Provide leadership,vision &manage.
• Responsibilities beyond making profit.
• Decisions affecting others like
retrenchment, closure.
• Community development.,hiring of
minorties, women not children.
• Equal pay, Fair Wages, Amenities,
Welfare.
• Environmental norms
 Business Responsibilities Of
Top Management
• Friedman: To use its resources & engage in
activities to increase its profit within the rules of
the game by engaging in open & free
competition without deception or fraud.
• Carroll’s Four Responsibilities:
– Economical: must do.
– Legal: have to do.
– Ethical: should do.
– Discretionary: might do.
 Code of Ethics in Decision
Making
• A code of ethics specifies how a firm expects its
employees to behave while on the job. Three basic
approaches:
– Utilaterian:judge by consequences,max benefit to society at min
cost & least harm.
– Individual rights: fundamental rights should be respected.
– Justice:equitable, Fair &impartial in reward & punishment.
• Ask three questions:-
• Utility:does it satisfy all Stakeholders?
• Rights:does it respect rights of all?
• Justice:is it consistent with the canons of justice?
 Chapter 3
ENVIRONMENT SCANNING
&
INDUSTRY ANALYSIS
COMPANY AND ENVIRONMENT
ENVIRONMENT

INPUTS PROCESSES OUTPUTS

ACTIVITIES
MEN OPERATIONS GOODS
MACHINE PLANNING SERVICES
MATERIAL MANUFACTURING SALES
METHODS INSPECTION PROFITS
MONEY PACKING

OBJECTIVES
GOALS
CORRECTIVE TARGETS FEEDBACK
ACTION

ENVIRONMENT
 PEST FACTORS

POLITICAL TECHNOLOGICAL

ECONOMIC SOCIAL
 PESTEL/STEEP MATRIX
POLITICAL
CURRENT/FUTURE LEGISLATION
REGULATORY BODIES
GOVT. POLICIES
GOVT. TERM & CHANGE
SOCIAL
LIFESTYLE TRENDS
DEMOGAPHICS
COMPANY ATTITUDES & OPINIONS
BRAND,COMPANY ,TECHNOLOGYIMAGE
CONSUMER BUYING PATTERNS
ETHNIC/RELIGIOUS FACTORS
LEGAL
INTERNATIONAL LAW
EMPLOYMENT LAW
COMPETITIOM LAW
HEALTH & SAFETY LAW
REGIONAL LEGISLATION
ECONOMIC
ECONOMY SITUATION & GDP TRENDS
TAXATION,INFLATION,DEVALUATION
INTEREST & EXCHANGE RATES
MARKET & TRADE CYCLE
TECHNOLOGICAL
TECHNOLOGY ACCESS,LICENSING,PATENTS
MATURITY OF TECHNOLOGY
REPLACEMENT TECHNOLOGY / SOLUTIONS
INNOVATION POTENTIAL
MANUFACTURING MATURITY & CAPACITY
ENVIRONMENTAL/ECOLOGICAL
ENVIRONMENTAL IMPACT
ENVIRONMENTAL LEGISLATION
ENERGY CONSUMPTION
WASTE DISPOSAL
CONSTITUENTS OF TASK ENVIRONMENT

COMMUNITIES COMPETITORS
GOVERMENTS

SHARE HOLDERS
SUPPLIERS

TASK /INDUSTRY ENVIRONMENT

FINANCIAL/
CREDITORS

REGULATORY
CUSTOMERS
PROVISIONS
 ENVIRONMENTAL CHANGES
WHICH FORCE THE FIRMS TO ADOPT STRATEGIC PERSPECTIVE

• CHANGES IN TECHNOLOGY
• PROLIFERATION OF NEW PRODUCTS
• FASTER COMMERCIALISATION OF NEW IDEAS
• EMERGENCE OF GLOBAL FIRMS, MARKETS & BRANDS
• CHANGING TASTES & PREFERENCES OF CUSTOMERS
• THE NEW AFFLUENCE OF CONSUMER
• SOCIO-CULTURAL & POLITICO-LEGAL CHANGES
• BUSINESS BOUNDRIES GETTING BLURRED
( DUE TO OVERARCHING TECNOLOGIES : FASTER COMMUNICATION,
INTERNET, E-GOVERNANCE & E-COMMERCE etc )
Analysis of Natural & societal Environment Factors

Market Analysis
Community & Competitor
Analysis

Supplier Analysis
Interest Group & Govt.
Analysis

Selection of
Strategic factors
 Categories of International
Industries
• Multidomestic Global
• Retailing Automobiles
• Insurance Tyres
• Banking TVs
• Strategic Group: is a set of firms that
pursue similar strategies with similar
resources like McDonalds & KFC,
Dominos & Pizza hut, Bikanerwala &
Haldirams
 PRIORITY MATRIX TO IDENTIFY ESF

Probable impact on firm

PROBALITY OF HIGH MED LOW
OCCURENCE

high High priority HP MP

med HP MP LOW PRIORITY

low MED PRIORITY LP LP

 PORTER’S MODEL
• BARGAINING POTENTIAL ENTRANTS
•Economies of scale OTHER
•Absolute cost
• POWER advantage
STAKEHOLDERS
(RELATIVE POWER OF
•Switching cost UNIONS, GOVT)
•Access to distribution
•Govt. policy
THREAT OF NEW ENTRANTS

SUPPLIERS BARGAINING BARGAINING BUYERS

•Supp.concentration POWER OF COMPETITIVE POWER OF •Buyer’s
RIVALARY concentration
•No. of buyers
SUPPLIERS ( INDUSTRY
•Switching cost COMPETITORS )
SUPPLIERS •No of suppliers
•Substitute raw mat. •Switching cost
•Threat of forward •Substitute products
integration THREAT OF SUBSTITUTE PRODUCTS
•Threat of backward
SUBSTITUTES Integration
•Functional similarity
•Price/Performance
trend
•Product identity
Porter’s Five forces
 NEW DEMANDS FIRMS HAD TO FACE
( CONSEQUENT TO ENVIRONMENTAL CHANGES )
• TO BE STRATEGICALLY ALERT
• TO BE FUTURE - ORIENTED
• TO BE ABLE TO TAKE RISKS IN TAPPING OPPORTUNITIES
• TO BE INSULATED ENOUGH AGAINST ENVIRONMENTAL
THREATS
• TO DEVELOP COMPETENCE FOR ASSIMILATING CHANGES
FASTER
• TO RESPOND EFFECTIVELY AND MORE ECONOMICALLY
( It helps avoid haphazard response to environment.
Provides best possible fit between the firm & Ext. Env.
Helps build sustainable competitive advantage.
Prepares the firm to not only face future but even shape
the future in its favor. )
 Strategic Types
• Defenders: are firms with a limited product line that focus
on improving the efficiency of their existing operations
like dhabas/small restaurants.
• Prospectors:are firms with fairly broad product lines that
focus on product innovation & market
opportunities:Pepsi
• Analysers:firms that operate in at least two different
product-market areas, one stable & one variable.P&G
• Reactors:are firms that lack a consistent strategy-
structure-culture relationship.Middlers.
• Hypercompetition:describes an industry undergoing ever
increasing uncertainty in which competitive advantage is
only temporary.Innovation & short PLC &design cycle.
 Industry Matrix

KEY WEIGHT FIRM A FIRM A FIRM B FIRM B

SUCCESS RATING WEIGHTED RATING WEIGHTED
FACTORS SCORE SCORE

1 2 3 4 5 6
1

TOTALS
 KEY SUCCESS FACTORS:ARE THOSE VARIABLES THAT AFFECT
SIGNIFICANTLY THE OVERALL COMPETITIVE POSITION OF A
FIRM WITHIN ANY INDUSTRY.

• Competitive Intelligence: is a formal program of gathering

information on company’s competitors.sources are ex-
employees,annual reports,websites,libraries,advertisements & theft.
• Forecasting: Environmental scanning provides hard data on present
situation &current trends.Methods are:-
• Extrapolation, Brainstorming & Industry Scenarios
• Synthesis of External Factors-EFAS
External Weight Rating WEIGHTED COMMENT
Factors SCORE
Opportunities

Threats

Totals
Any Questions?

THANK YOU!!