Definition of Business Policy

Business Policy is the study of the functions and responsibilities of

top management, the crucial problems that affect success of the
total enterprise and the decisions that determine the direction of
the organization and shape its future
ORGANIZATIONAL POLICIES
These refer to the overall policies of the organization. These policies decide the goals of the activities of
the organization as a whole.

FUNCTIONAL POLICIES
Functional Policies are prepared for different functions such as production, marketing, finance, personnel
etc. Functional policies are decided keeping in view the organizational policies. These policies help in
coordination of efforts of different people.

ORIGINATED POLICIES
These are those policies which are initiated by the managers. These policies are prepared for the guidelines
of the subordinates. It is also known as Internal policy.

APPEALED POLICIES
This type of policy is formulated only on the request of the subordinates. This policy helps the
subordinates to handle some situations. If the existing policy does not give any scope to handle
extraordinary situations; appealed policy is to be formulated.

IMPOSED POLICIES
These policies are not formulated by the organization itself. These are the policies which are imposed upon
an organization by outside forces like the government, trade unions, trade associations etc. This is a
common form of policy in these days because the role of external agencies is increasing day by day. It is
also known as External policy.

SPECIFIC POLICIES
It is a policy which is formulated with regard to any specific issue i.e. transfer, promotion, compensation
etc. A specific policy must conform to the broad outlines mentioned in the general policies.

SUPPORTIVE POLICIES
These policies are meant to be formulated to support the major policies. A concern may have the
development of a new product as a major policy; the research to find out the unfulfilled needs of
consumers may be a supportive policy.

Strategic Management
The term ‘Strategic Management’ is used to denote a branch of management that is
concerned with the development of strategic vision, setting out objectives, formulating and
implementing strategies and introducing corrective measures for the deviations (if any) to
reach the organization’s strategic intent. It has two-fold objectives:
  To gain competitive advantage, with an aim of outperforming the competitors, to
achieve dominance over the market.
 To act as a guide to the organization to help in surviving the changes in the business
environment.

Here, changes refer to changes in the internal environment, i.e. within the organization,
introduced by the managers such as the change in business policies, procedures etc. and
changes in the external environment as in changes in the government rules that can affect
business, competitors move, change in customer’s tastes and preferences and so forth.

Strategic Management Process

1. Defining the levels of strategic intent of the business:

 Establishing vision
 Designing mission
 Setting objectives
2. Formulation of strategy
 Performing environmental and organizational appraisal
 Considering strategies
 Carrying out strategic analysis
 Making strategies
 Preparing strategic plan
3. Implementation of strategy
 Putting strategies into practice
 Bmjnṁ Developing structures and systems
 Managing behavioural and functional implementation
4. Strategic Evaluation and Control
 Performing evaluation
 Exercising control
 Recreating strategies

Strategic Management is all about specifying organization’s vision, mission and objectives,
environment scanning, crafting strategies, evaluation and control.

Importance of Strategic Management

  It guides the company to move in a specific direction. It defines organization’s goals
and fixes realistic objectives, which are in alignment with the company’s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the
actions of the competitors and take necessary steps to compete in the market, instead
of becoming spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of
pioneer in exploring opportunities and also helps in identifying ways to reach those
opportunities.
 It ensures the long-term survival of the firm while coping with competition and
surviving the dynamic environment.

The basic purpose of strategic management is to gain sustained-strategic competitiveness of

the firm. It is possible by developing and implementing such strategies that create value for
the company. It focuses on assessing the opportunities and threats, keeping in mind firm’s
strengths and weaknesses and developing strategies for its survival, growth and expansion.

ENVIRONMENTAL SCANNING

Environmental Scanning is the process by which an organization

monitors the relevant environment the identify opportunities and
threats affecting the business for the purpose of making strategic
decisions.

Factors to be considered while conducting an environmental

appraisal –
  Events – Important and specific occurring taking place in
different environment sectors
 Trends – General tendencies or course of action around which
events and trends take place.
 Issues – Current concern that arise or respond to events and
trends
 Expectations – Demand which are made by interested group
in the light of current issue
 

Dimensions of Environmental Scanning: 

SPECTACLES – Social, Political, Economic, Cultural, Technological,

Aesthetic, Customer, Legal, Environmental and Sectoral

Approach’s to environmental scanning

1. Systematic approach – In this approach information for

environmental scanning is collected systematically.
Information related to markets and customers, change in
legislation and regulations etc. have a direct impact on the
business therefore it is continually monitored for relevant
facts. This approach is beneficial for strategic management
and operational activities.
2. Ad-hock approach -An organization may conduct a special
survey related to specific environmental issues from time to
time… such studies may be undertaken when an organization
has to take up new projects or update existing strategies.
Changes and unforeseen developments may be investigated
which affect the organization
3. Processed form approach-The organization under this
approach uses information in a processed form available
from both internal and external environment.eg. Information
 supplied by government agencies, private institutions, it uses
secondary data method.
 

Sources of information for environment scanning

 Secondary sources of information-

newspapers,magazines,journals,documentaries
 Mass media- radio, TV. , internet
 Internal sources- Internal files , documents, reports ,records ,
database
 External agencies-Customers, market intermediaries, suppliers,
retailers etc.
 Spying and surveillance- through ex-employees of competitors,
industrial espionage, planting a mole in rival company.
 

Techniques of Environmental Scanning

1. SWOT Analysis- SWOT analysis is an acronym for Strengths,
Weaknesses, opportunities and threats analysis of the environment.
Strengths and weaknesses are considered as internal factors
whereas opportunities and threats are external factors. These
factors determine the course of action to ensure the growth of the
business.
2. PEST Analysis- PEST stands for Political, economic, social, and
technological analysis of the environment. It deals with the external
macro-environment.
3. ETOP- ETOP stands for the Environmental Threat Opportunity
Profile. It helps an organization to analyze the impact of the
environment based on threats and opportunities.
4. QUEST- QUEST stands for the Quick Environmental Scanning
Technique. This technique is designed to analyze the environment
quickly and inexpensively so that businesses can focus on critical
issues that have to be addressed in a short span.
 


SWOT ANALYSIS OF A BUSINESS

SWOT analysis –   It was developed in 1960`s at Stanford research institute.
SWOT Analysis is a strategic management technique to understand the internal
and external environment of an organization in terms of its strengths,
weaknesses, opportunities and threats.

S = Strength          W = Weakness        O = Opportunity         T = Threat

Strengths: factors that give an edge for the company over its
competitors.
Weaknesses: factors that can be harmful if used against the firm by its
competitors.
Opportunities: favorable situations which can bring a competitive
advantage.
Threats: unfavorable situations which can negatively affect the
business.

 Answering the 4 major questions –

How to maximize the internal strengths of the organization?

How to minimize the internal weaknesses of the organization?

How to capitalize on opportunities present in the external environment of the

organization?
How to protect the organization from threats in the external environment?

 Based upon the results of the above analysis a SWOT matrix is prepared
which consists of Strengths, Weaknesses, Opportunities and Threats
present in the Organization`s internal and external environment and
its impact on the business is studied.

Benefits

Swot tool has 5 key benefits:

 Simple to do and practical to use;

 Clear to understand;
 Focuses on the key internal and external factors affecting
the company;
 Helps to identify future goals;
 Initiates further analysis.

Limitations of SWOT analysis

 doesn't prioritise issues.
  doesn't provide solutions or offer alternative decisions.
 can generate too many ideas but not help you choose which one is best.
 can produce a lot of information, but not all of it is useful.

What is the purpose of an environmental analysis?

Environmental analyses help businesses identify potential influences that may

provide either an opportunity or threat for them. This helps them prepare for
changes in their environment. Some benefits of using an environmental
analysis include:

 Forecasting the future

 Identifying threats and allowing them to develop a strategy for
response
 Helping achieve business objectives
 Forming effective strategies and marketing programs for a
business
 Improving organizational performance

What is the environmental analysis process?

The environmental analysis process consists of the following steps:

1. Identify environmental factors

To conduct an environmental analysis, start by selecting environmental factors

to evaluate. This depends on your type of industry. For instance, if you work for
a healthcare facility, you may want to consider legal factors, such as health and
safety regulations. When selecting factors, choose ones that have the potential
to impact how you do business.

2. Gather information

Once you decide which factors to evaluate, collect information related to your
selected environmental factors. Here you may observe your factors and do
some research. There are two main types of information to collect: verbal and
written information. Individuals obtain verbal information through hearing,
such as listening to a radio broadcast, whereas they obtain written information
by reading sources, such as a newspaper or magazine. Using the above
example, this would involve researching online and in medical magazines to see
if there were any changes to health and safety regulations that may impact
your health facility.

3. Evaluate your competitors

To determine if there are any threats from your competitors, you may want to
collect information about them. You can do this using a technique called spying,
where you collect information in a nontraditional way. Using the same scenario,
you may spy on a nearby health facility to learn about their recent activities,
such as a new branch opening.

4. Forecast the impact

Forecasting allows you to predict how certain environmental factors may

impact your business. This allows you to anticipate potential threats or
opportunities. When forecasting, there are a variety of methods to use, such as
brainstorming and surveying. Continuing with the same example, the health
facility may forecast that the new branch opening at their competitor's facility
may take away some of their patients.

5. Assess your strategies

Finally, assess your current and potential strategies to determine how the
projected environmental changes may affect your organization. This helps you
resolve potential challenges that may have resulted from the factors. For
instance, the health facility may want to create a new strategy for how they plan
to address the decrease in clients due to their competitor's new branch.

What is the PESTLE analysis?

The PESTLE analysis, sometimes abbreviated to PEST, is a common method for

conducting an environmental analysis. Organizations use this to look at factors
that may impact the profitability of their business. PESTLE stands for the
following factors:

Political

Political factors examine the country's current political situation. This often
involves evaluating to see if the government is stable or likely to change soon.
Political factors to consider include:
  Tax laws
 Government policies
 Trade restrictions
 Corruption

Related: 10 Techniques for Effective Business Analysis

Economical

When conducting an environmental analysis, businesses often look at economic

factors, or the current state of the economy. This allows them to design
strategies based on the direction the economy appears to be going. For
instance, if the unemployment rates are low, a business may assume the
economy is in a good condition and consider opening another branch. Other
economic factors to consider in your review are:

 Interest rate
 Inflation rate
 Foreign exchange rate
 Credit accessibility

Social

Social factors are the attitudes a country has that may impact business. For
instance, in some cultures, individuals eat a diet based on their religion. This
may affect the sales of certain foods in that area. Some examples of social
factors include:

 Family structure
 Gender roles
 Distribution of wealth
 Education levels

Related: PEST Analysis: What It Is and How To Use It

Technological

Technological factors include advancements and innovations that may change

how a company conducts business. For some businesses, this may positively
impact their processes by utilizing automation to speed up creation. However,
technology may also replace some job positions. Technological factors to
consider in your analysis include:

 New discoveries or product launches

 Rate of technological advances
 Consumer access to technology
 Technology incentives

Legal

Legal factors look at legislative changes that may impact the environment of a
business. When regulatory bodies set new regulations for a particular industry,
such as healthcare, it may impact that industry. Some legal factors to be aware
of include:

 Health and safety regulations

 Patent infringements
 Product regulations
 Employment laws

Environmental

Environmental factors look at how the geographical location may affect a

business. Certain conditions in a given area may impact trade. Environmental
factors to consider in your review are:

 Weather conditions
 Waste disposal laws
 Energy consumption regulations
 Environmental policies

POTERS DIMOND MODEL

These four national characteristics are also interrelated as
shown in
the diamond determinants.
1. Factor conditions The special factors or inputs of
production such as natural resources, raw materials,
labour, etc. that a nation is especially endowed with.
2. Demand condition The nature and size of the buyer's needs
in the domestic market such as sophisti-
cated and demanding buyers and large markets in the nation.
3. Related and supporting industries The existence of related
and supporting industries to the ones in
which a nation excels such as resourceful local suppliers.
4. Firm strategy, structure, and rivalry The conditions in the
nation determining how firms are created,
organised, and managed, and the nature of domestic
competition such as strong rivals.
Concept of Value Chain
Manufacturing companies create value by acquiring raw materials and using them to
produce something useful. Retailers bring together a range of products and present them in a
way that’s convenient to customers, sometimes supported by services such as fitting rooms or
personal shopper advice. And insurance companies offer policies to customers that are
underwritten by larger re-insurance policies. Here, they’re packaging these larger policies in a
customer-friendly way, and distributing them to a mass audience.

The value that’s created and captured by a company is the profit margin:

Value Created and Captured – Cost of Creating that Value = Margin

The more value an organization creates, the more profitable it is likely to be. And when you
provide more value to your customers, you build competitive advantage.

Understanding how your company creates value, and looking for ways to add more value, are
critical elements in developing a competitive strategy. Michael Porter discussed this in his
influential 1985 book “Competitive Advantage,” in which he first introduced the concept of
the value chain.

A value chain is a set of activities that an organization carries out to create value for its
customers. Porter proposed a general-purpose value chain that companies can use to examine
all of their activities, and see how they’re connected. The way in which value chain activities
are performed determines costs and affects profits, so this tool can help you understand the
sources of value for your organization.

Elements in Porter’s Value Chain

Rather than looking at departments or accounting cost types, Porter’s Value Chain focuses on
systems, and how inputs are changed into the outputs purchased by consumers. Using this
viewpoint, Porter described a chain of activities common to all businesses, and he divided
them into primary and support activities, as shown below.
Primary Activities

Primary activities relate directly to the physical creation, sale, maintenance and support of a
product or service. They consist of the following:

 Inbound logistics– These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.
 Operations– These are the transformation activities that change inputs into outputs that are
sold to customers. Here, your operational systems create value.
 Outbound logistics– These activities deliver your product or service to your customer. These
are things like collection, storage, and distribution systems, and they may be internal or
external to your organization.
 Marketing and sales– These are the processes you use to persuade clients to purchase from
you instead of your competitors. The benefits you offer, and how well you communicate
them, are sources of value here.
 Service– These are the activities related to maintaining the value of your product or service to
your customers, once it’s been purchased.

Support Activities

These activities support the primary functions above. In our diagram, the dotted lines show
that each support, or secondary, activity can play a role in each primary activity. For
example, procurement supports operations with certain activities, but it also supports
marketing and sales with other activities.

 Procurement (purchasing)– This is what the organization does to get the resources it needs
to operate. This includes finding vendors and negotiating best prices.
 Human resource management– This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR practices.
  Technological development– These activities relate to managing and processing
information, as well as protecting a company’s knowledge base. Minimizing information
technology costs, staying current with technological advances, and maintaining technical
excellence are sources of value creation.
 Infrastructure– These are a company’s support systems, and the functions that allow it to
maintain daily operations. Accounting, legal, administrative, and general management are
examples of necessary infrastructure that businesses can use to their advantage.

Companies use these primary and support activities as “building blocks” to create a valuable
product or service.

Using Porter’s Value Chain

To identify and understand your company’s value chain, follow these steps.

Step 1 – Identify subactivities for each primary activity

For each primary activity, determine which specific subactivities create value. There are three
different types of subactivities:

 Direct activitiescreate value by themselves. For example, in a book publisher’s marketing

and sales activity, direct subactivities include making sales calls to bookstores, advertising,
and selling online.
 Indirect activitiesallow direct activities to run smoothly. For the book publisher’s sales and
marketing activity, indirect subactivities include managing the sales force and keeping
customer records.
 Quality assuranceactivities ensure that direct and indirect activities meet the necessary
standards. For the book publisher’s sales and marketing activity, this might include
proofreading and editing advertisements.

Step 2 – Identify subactivities for each support activity.

For each of the Human Resource Management, Technology Development and Procurement
support activities, determine the subactivities that create value within each primary activity.
For example, consider how human resource management adds value to inbound logistics,
operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality
assurance subactivities.

Then identify the various value-creating subactivities in your company’s infrastructure. These
will generally be cross-functional in nature, rather than specific to each primary activity.
Again, look for direct, indirect, and quality assurance activities.

Step 3 – Identify links

Find the connections between all of the value activities you’ve identified. This will take time,
but the links are key to increasing competitive advantage from the value chain framework.
For example, there’s a link between developing the sales force (an HR investment) and sales
volumes. There’s another link between order turnaround times, and service phone calls from
frustrated customers waiting for deliveries.