Business policy refers to decisions about the future taken by top management.

It is
guidelines given to employees by senior management for functioning. It is the
means and ends, molding of organization’s identity and character and continuous
guidance of actions to attain goal.

Business policy is rooted in the practice of management and has passes through
certain phases before taking its shape of strategic management.

1. Meaning of Strategy

In business parlance, there is no definite meaning of strategy. Strategy literal

meaning is “In anticipation of opponents move, designing one’s own way of
action”. As it has different interpretations and really difficult to fathom what
strategy means. So we can conclude that it is the means to achieve organizational
goal. It also relates to resources necessary for implementing a plan or following a
course of action.

By ‘Strategy’, managers mean:

i. Large-scale, future-oriented plans for interacting with the competitive
environment.
ii. An integrated and coordinated set of commitments and actions designed to
exploit core competencies.
iii. A company’s game and action plan of how, when and where it should compete,
against whom it should compete; and for what purposes it should compete.

2. Definition of Strategy

“A strategy is a unified, comprehensive, and integrated plan that relates the

strategic advantages of the firm to the challenges of the environment. It is designed
to ensure that the basic objectives of the enterprise are achieved through proper
execution by the organization.”
-Lawrence R. Jauch & William F. Glueck.
3. Strategic Management
Strategic management is the process of setting goals, procedures, and objectives in
order to make a company or organization more competitive. Typically, strategic
management looks at effectively deploying staff and resources to achieve these
goals. Often, strategic management includes strategy evaluation, internal
organization analysis, and strategy execution throughout the company.
In business, strategic management is important because it allows a company to
analyze areas for operational improvement. In many cases, they can follow either
an analytical process, which identifies potential threats and opportunities, or
simply follow general guidelines.

4. Nature of Strategic Management

A.  Strategic Management is a Process:

Strategic management is basically a process. It has emerged out of
management in other fields where the concept of management is taken as a process
for achieving certain objectives of the organization. Thus, strategic management
involves establishing a framework to perform various processes. The concept of
strategic management must embody all general management principles and
practices devoted to strategy formulation and implementation in the organization.

B. Top Management Function:

Strategic management is basically top management function.
Thus, in order to ensure effective top management function, it is necessary that a
distinction should be made between strategic management and operational
management which emphasises day-to-day operations in the organization, so that
top management can focus more attention on the strategic aspect rather than
emphasising on operational management. Since the environment of the
organization is always changing providing new opportunities and threats, top
management must spend more and more time on this aspect.

C. General Management Approach:

Strategic management has general management approach. This
approach has three characteristics –
(i) This approach uses system frame of reference in dealing with wholeness of an
organization. In this dealing, the emphasis is put on identifying tendencies of
various phenomena in the organization and relationships among these tendencies.
(ii) Decision criteria are based on overall betterment of the organization as a
whole, not the criteria used by functional specialists.
(iii) Attempt is made to achieve organizational equilibrium and generation of
synergy. This may be even suboptimal for some departments or units of the
organization.

D. Relating Organization to Environment:

The focus of strategic management is on relating the organization to
its external environment. This emphasizes that there is continuous interaction
between the organization and its environment taking an open systems approach.
Thus, the organization must create adequate channel through which external
information will pass to various points in the organization.

E. Long-Term Issues:
Strategic management deals primarily with long-term issues of the
organization that may or may not have an immediate effect. For example,
investment in research and development (R&D) may yield no immediate effect in
terms of new product development. However, this investment may lead to
development of new products and, therefore, enhanced profits.

F. Flexibility:
Strategic management has flexibility. This flexibility is required
because strategic management works in the context of environment which is quite
dynamic. As a result, many strategic actions planned maybe either left, postponed,
or changed in the light of environmental requirements.

G. Innovation:
Strategic management puts emphasis on innovation which is the
process of introducing new things or new ways of working. Innovation is achieved
through new strategic actions which are quite different from the previous actions.
Innovation is required to face environmental challenges effectively.

H. Requirement of large amounts of resources :

Strategic management requires the commitment of the firm to
actions over an extended period of time. So, they require substantial resources,
such as physical assets, 20 manpower etc.
Example: Decisions to expand geographically would have significant financial
implications in terms of the need to build and support a new customer base.

I. Future-oriented :
Strategic management encompasses forecasts, what is anticipated
by the managers. In such decisions, the emphasis is on the development of
projections that will enable the firm to select the most promising strategic options.
In the turbulent environment, a firm will succeed only if it takes a proactive stance
towards change.

J. Multi-functional or multi-business consequences :

Strategic management has complex implications for most areas of
the firm. They impact various strategic business units especially in areas relating to
customer-mix, competitive focus, organisational structure etc. All these areas will
be affected by allocations or reallocations of responsibilities and resources that
result from these decisions.

5. Scope of Strategic Management

1. Financial Benefits:
Firms that make strategic plans have better sales, lower costs, higher EPS (earnings per
share) and higher profits. Firms have financial benefits if they make strategic plans.

2. Guide to Organizational Activities:

Strategic planning guides members towards organizational goals. It unifies organizational
activities and efforts towards the long-terms goals. It guides members to become what
they want to become and do what they want to do.

3. Competitive Advantage:
In the world of globalization, firms which have competitive advantage (capacity to deal
with competitive forces) capture the market and excel in financial performance. This is
possible if they foresee the future; future can be predicted through strategic planning. It
enables managers to anticipate problems before they arise and solve them before they
become worse.

4. Minimizes Risk:
Strategic planning provides information to assess risk and frame strategies to minimize
risk and invest in safe business opportunities. Chances of making mistakes and choosing
wrong objectives and strategies, thus, get reduced.
5. Beneficial for Companies with Long Gestation Gap:
The time gap between investment decisions and income generation from those
investments is called gestation period. During this period, changes in technological or
political forces can disrupt implementation of decisions and plans may, therefore, fail.
Strategic planning discounts future and enables managers to face threats and
opportunities.

6. Promotes Motivation and Innovation:

Strategic planning involves managers at top levels. They are not only committed to
objectives and strategies but also think of new ideas for implementation of strategies. This
promotes motivation and innovation.

7. Optimum Utilization of Resources:

Strategic planning makes best use of resources to achieve maximum output.
General Robert E. Wood remarks, “Business is like war in one respect. If its grand
strategy is correct, any number of tactical errors can be made and yet the enterprise proves
successful.” Effective allocation of resources, scientific thinking, effective organisation
structure, co-ordination and integration of functional activities and effective system of
control, all contribute to successful strategic planning.