BUSINESS POLICY

AND STRATEGIC
MANAGEMENT
 BUSINESS POLICY
 The term policy means general statements that
influences organization’s decisions and actions.
 According to Harold Koontz “Policies are
general statements that guide managers’
thinking in decision making. They ensure that
decisions fall within certain boundaries.”
 According to Miller and Earnest, “A policy is a
statement or a commonly accepted
understanding of decision making criteria
 Business policy is a statement or a commonly
accepted understanding that affects the
organization. According to R.E.Thomas, BP
refers to decisions about the future of an
ongoing enterprise.
 Aspects of business policy:-
 1.It is considered as the study of functions and
responsibilities of the senior mgt.
 2.It determines the future course of action.
 3.It involves a choice of purposes and defining
the what needs to be done in order to mould
the character and identity of the organization
 4.It is also concerned with the mobilization of
resources by the help of which the
organization can achieve its goals
 Importance of Business policy
 1.Integrated knowledge of business function
 2.Knwoledge of org. resources
 3.Thorough knowledge of business environment
 4.Helpful in anticipation of future
 5.Enlightened direction
 6.Identification of core competence
 7.Better utilization of resources
 8.long run growth
 9.Involvement of all managers
 10.Change Implementation
CONCEPTUAL FOUNDATION IN
BUSINESS POLICY
 Definition of some important terms:-
 1.Vision:-A vision refers to the category of
intentions that are broad, all inclusive and
forward thinking.
 A vision describes aspirations for the future,
without specifying the means that will be used
to achieve those desired goals .
 Vision provides an orientation and defines the
directions towards destination
CONCEPTUAL FOUNDATION IN
BUSINESS POLICY
 2.MISSION:-Mission statements reflects the
corporate philosophy, identity and vision. It states the
overall reason for the existence of an organization.
“What is our business’? “What will be”? “What
should be”? Are answered by the mission statement.
 In the words of John Pearce II, a mission statement is
“an enduring statement of purpose that distinguishes
one business from other similar firms. A mission
statement identifies the scope of a firm’s operations
in product and market terms.
 M/S defines the business of an organization and
states basic goals, characteristics and guiding
philosophies. Its purpose is to set the organizational
context within which strategic decisions will be
made. It gives the strategic focus and direction.
 M/S classifies and defines company’s economic,
social and managerial philosophy and demarcates the
fundamental lines of business which it wishes to
pursue.
 CONCEPT OF STRATEGY
 The term strategy is popularly used in military
and politics.It comes from the Greek word
Stratos (Army) and Agein (to lead).
 Strategy is the science pf planning and
directing military operations.
 Strategy is the art and science of combining
the many resources available to achieve the
best match between an organization and its
environment.
 A strategy is a unified, comprehensive and
integrated plan that relates the strategic
advantage of the firm to the challenges of the
environment. It is designed that the basic
objectives of an enterprise are achieved
through proper execution by the organization.
 Mitzberg defines strategy as ‘a pattern of
decisions as actions’
 “Anybody who comes up with a new product or a new
market, or is able to integrate different parts of those things
is a strategist.”-Mintsberg
 Difference between policy and strategy:-

Policy will guide a manager’s thinking in decision making. But

a strategy implies the commitment of resources in a given
direction.
Policies are more thought oriented abstractions but strategies
are action oriented.
Policies channelise thinking process with the directions of the
management.Strategy has lesser discretion and more
commitment of resources in the chosen direction.
STRATEGIC MANAGEMENT
 S/M is defined as the set of directions and
actions resulting in formulation and
implementation of strategies designed to
achieve the objectives of an organization.
 S/M involves deciding and implementing
strategies with the use of resources for
ensuring existence and expansion of an
enterprise.
 STRATEGIC MANAGEMENT
 “A set of managerial decisions and actions that determines
the long run performance of a corporation – Monitoring
and evaluating of external threats and opportunities in the
light of corporation’s strength and weaknesses.”
Elements ( A basic model)
1.Strategic planning
2.Environmental scanning(external & internal)
 3.Strategy formulation
 4.Strategy implementation
 5.Evaluation and control
 6.Feed back / learning proces
 Strategic planning involves allocation of
resources to achieve the mission and long run
objectives of the organization.
 S/P involves the following:-
 1.Deciding the vision, mission, objectives and
goals
 2.Environmental scanning or analysis
 3.Internal analysis
 4.Exploring strategic alternatives
 5.Strategic analysis and choice of strategy
 ENVIRONMENTAL
ANALYSIS (OR)SCANNING
 “The process by which organizations monitor
their relevant environment to identify
opportunities and threats affecting their
business” is known as Environmental scanning
or analysis.
 It is the process of gathering information
regarding organization’s environment,
analyzing it and forecasting the impact of all
predictable environment changes.
 Goals /Need for E/S:-1. The analysis should provide
an understanding of current and potential changes
taking place in the environment.
 2.It should provide inputs for strategic decision
making. Mere collection of data is not enough.
 3.It should facilitate and foster strategic thinking. It
should challenge the current wisdom by bringing
fresh view points into the organization.
Micro and Macro Environmental
factors
 Micro E/F:1.Consumer2.Competitors
 3.Organization 4.Market 5.Suppliers
 6.Intermediaries like retailers who connect to
the consumers
 Macro E/F:1.-Demographic 2.Economic
3.Govt.4.Legal 5.Political 6.Cultural
7.Technological 8.Global
Environmental scanning
 Strategic Mgt.Process
 In a competitive market place, companies can
operate successfully by creating and delivering
superior value to target customers and also
learning how to adapt to a continuously
changing business environment. So to meet the
changing conditions in their industries,
companies need to be farsighted and visionary,
and must develop long term strategies.
 Strategic Mgt.Process
 Strategic planning, an important component of S/M,
involves developing a strategy to meet competition
and ensure long term survival and growth.
 The overall objectives of S/M is two fold:-1.To create
competitive advantage, so that the company can
outperform the competitors in order to have
dominance over the market.
 2.To guide the company successfully through all
changes in the environment.
 Strategic Mgt.Process
 S/M process involves five stages:-
 I Beginning II Ends III Means IV Evaluation
 V- Control
 Stage 1:- Where are now? (Beginning)-This is
the starting point of s/p. It consists of doing a
situational analysis of the firm in the
environmental context. Here, the firm must
find its market position, corporate image and
its SWOT.
 Strategic Mgt.Process
 Stage Two:- (Ends) Where we want to be ?
 This is a process of goal setting for the
organization after it has finalized its vision
and mission. A strategic vision is a roadmap of
the company’s future- providing specifics
about technology and customer focus, the
geographic and product markets to be pursued,
the capabilities it plans to develop and the kind
of company that the mgt. is trying to create.
 Strategic Mgt.Process
 Stage Three:-(Means) How we get there? Here the
organization deals with the various strategic
alternatives it has.
 Stage Four (Evaluation):-Out of all the alternatives
generated, the organization selects the best suitable
alternatives in line with the SWOT analysis.
 Stage Five:-How can we ensure arrival(Control)
 This is an implementation and control stage of a
suitable strategy.
 Again the organization continuously does situational
analysis and repeats the stages again.
 Tasks of S/M
 1.Setting vision and mission
 2.Setting objectives
 3.creating a strategy to achieve the desired outcomes
 4.Implementing and executing the chosen strategy
efficiently and effectively.
 5.Evaluating performance and initiating corrective
adjustments in vision, long term direction, objectives,
strategy or execution in the light of actual experience,
changing conditions, new ideas and new opportunities.
 Contributions to S/M Philosophy
 Alfred D Chandler
 Kenneth Andrews
 Igor Ansoff
 William F Glueck
 Henry Mintzberg
 Michel E Porter
 Contribution by M E Porter
 Michel porter of Harward Business school has made
invaluable contributions to the development of the
concept of strategy.
 He has written the following books:-”Competitive
Strategy”, “Competitive Advantage” and
“Competitive advantage of Nations”.
 His contribution on competitive advantage,five forces
model,generic strategies and value chain analysis are
most important.
 PORTER’S FIVE FORCES
MODEL
 The essence of strategy formulation is coping
with competition.All organizations have
competition. The benefit of competition are
also enjoyed by the society and the markets in
which organizations operate. The customers
are able to get the products cheaper and better
quality. They get better value of their money
because of competition.
 While formulating strategies, organizations
have to separately identify and concentrate on
the competitors who are significantly affecting
the business. Competition is not restricted to
the same product or service.
 For studying the competitive environment, the
following questions are to be considered.
 1.Who are our competitors?
 2.What are their products and services?
 3.What are their market shares?
 4,What are their financial positions?
 5.What gives them cost and price advantage?
 6.What are they likely to do next?
 7.Who are the potential competitors?
 Co-operation in a competitive environment:-
 OPEC-Organization of Petroleum Exporting
Countries-share the output and market-
 -various arrangements like syndication-restrictions on
output etc.,
 In Japan, KIERETSU- -an association traders, share
purchase, distribution or any other functions.
 Similarly pools and cartels- restrict the competition.
 Competitor analysis deals with the actions and reactions
of individual firms within an industry or strategic group.
 According to Michel Porter the purpose of conducting
competitor analysis is to :-
 1.Determine each competitor’s reaction to the industry
and environmental changes
 2.Anticipate the response of each competitor to the
likely strategic moves by the other firm
 3.Develop a profile of the nature and success of the
possible strategic changes each competitor must
undertake.
 Porter contents that an organization is most
concerned with the intensity of competition within its
industry. According to Porter, the collective strength
of these forces determine the ultimate profit potential
of the industry
 A powerful and widely used tool for systematically
diagnosing the significant competitive pressures in a
market and assessing the strength and importance of
each is the five forces model of competition.
Five forces model of competition.

 This model holds that the state of competition in an

industry is a composite of competitive pressures
operating in five areas of the overall market.
 1.Rivalry among the existing firms-industry competitors
 2.Threat of new entrants
 3.Competition form substitute products
 4.Supplier bargaining power and supplier-seller
collaboration
 5.Buyer bargaining power and seller-buyer
collaborations.
 Five forces model of competition.
Contd.
 1.Rivalry among current players:- The competition
prevailing in the market-the competitors influence prices,
costs, product development, advertising, sales force etc.,
The threat of internal rivalry depends on
1.No.of firms,their relative market share,strength
2.State of growth of industry-fixed or storage costs
3.Indivisibility of capacity augmentation
4.Exit barrier-compensation for labour-emotional attachment
5.Switching costs-cost of retaining the labour, customer,cost
of new ancillary equipment etc.,
2.Threat of new entrants:-New entrants are the
powerful source of competition. The new capacity
and product range they bring in throw up new
competitive pressure. New entrants also place a
limit on prices and affect the profitability of
existing players.
But there are some entry barriers:-
1.Govt.Policy2.Economies of scale 3.cost
disadvantages
4.product differentiation 5.capital requirements
Five forces model of competition.
Contd.,
 3.Competition form substitutes:- They are
the latent source of competition in an industry.
Substitute products offering price advantage
and / or performance improvement to the
consumer can drastically alter the competitive
character of an industry.And they can bring it
about all of a sudden. Substitutes also limit the
prices and profits in an industry.
Five forces model of competition.
Contd.,
 4.Bargaining power of suppliers:-Suppliers
too can exercise a considerable bargaining
power over the companies. The more
specialized the offering from the supplier,
greater will be his force. If suppliers are
limited, then their bargaining power will be
even more. The bargaining power of the
suppliers decide the cost of raw materials and
other inputs of the industry and therefore
industry attractiveness and profitability
Five forces model of competition.
Contd.,
 5.Bargaining power of customers:-The
collusion on the part of the buyers can be a
major force in some industries. The bargaining
power of the buyers influence not only prices
but also the costs and investments on the part
of the producer.
Five forces model of competition.
Contd.,
 A firm has to give due weightage to each of these
forces as a fight can emerge from any quarter.
 The five forces together determine industry
attractiveness/ profitability. This is so because these
forces influence the causes that underlie the industry
attractiveness/ profitability. The collective strength of
these five competitive forces determines the scope to
earn attractive profits.
 Agency Theory
 A joint stock company is an artificial person
created by law and many persons contribute
money to the common stock. These persons
are known as shareholders. As it is not
possible for all the shareholders to manage the
company, they elect their representatives as
Board of Directors who act as their agents to
manage the company .There are chances for
the conflict of interest between the
agents(Board) and owners(Shareholders).
 Agency Theory-contd.
 According to a study by Berle and Means, top
managers are ‘hired hands’. The agency theory
tries to address the problems between the
shareholders/owners and their Agents –Board
of Directors. According to this theory,
 The agency problem arises when the interests
of owners and agents conflict and when it is
difficult for the owners to check the actions of
the agents
 Agency Theory-contd.
 Agency theory suggests that the top
management should have a significant degree
of ownership of the company and should have
a strong financial stake in its long term
performance.
 CORPORATE GOVERNANCE
 Corporate Governance refers to the
relationship that exist between the
different participants and defining the
direction and performance of a corporate
firm.It relates to the transparency between
the BODs and the shareholders.
 CG is one which addresses the problems
that result from the separation of
ownership and control.
       CG is “a conscious,deliberate and
sustained efforts on the part of corporate entity
to strike a judicious balance between its own
interest and the interest of various constituents
on the environment in which it is operating”
       “CG,basically,has to do with power and
accountability,who exercise power, on behalf
of whom, and how the exercise of power is
controlled”-Adrian Cadboury on CG.
 CORPORATE GOVERNANCE
 CG deals with the ways in which suppliers
of finance to corporations assure
themselves of getting a return on their
investment.
 The following are the main actors in CG.
 1.The CEO- the management 2.Board of
Directors 3.The shareholders
 CG is important because of the
following reasons:-
1.It lays down the framework for creating long term trust
between the companies and the external providers of capital.
 2.It improves strategic thinking at the top by inducing
independent directors who bring in a wealth of experience
and a host of new ideas.
 3.It rationalizes the management and monitoring of risks a
firm faces globally.
 4.It limits the liability of top mgt. And directors by
carefully articulating the decision making process.
  5.It ensures integrity of financial reports. 6.It helps to
provide a degree of confidence that is necessary for the
proper funding of a market economy.
CORPORATE GOVERNANCE
 Companies Act, 1956 provides for
transparency between the agents and
owners. The constitution of Audit
committee,Report on corporate
governance by BODs as part of the
Directors’ report, nomination of
independent directors, compliance
certificate etc., are the steps taken by the
Govt. in this direction.
STRATEGIC BUSINESS UNIT
(SBU)
 The SBU concept was evolved by General
Electric company of USA to manage its multi-
product business. –Godrej, Hidustan Unilever
 This concept of SBU is relevant to multi-
product, multi-business .enterprises.It may not
be possible to provide separate strategic
planning treatment to each one of its products/
businesses.
 SBU-contd.
 SBU is a scientific method of grouping
businesses of a multi business corporation which
helps the firm in strategic planning.
 It helps right setting for correct strategic planning
and facilitates correct relative priorities and
resources to various businesses.
 The mission,objectives, competition and strategy

will be different for each SBU .

 SBU-contd.
 Each SBU will have its own distinct set of
competitors and its own distinct strategy.
 Each SBU will have a CEO. He will be responsible
for strategic planning for the SBU and its profit
performance.
 Each SBU is managed as a portfolio of the
organization with a clearly defined market
segment/product and clearly defined strategy.
 Relationship between corporate level
strategy,business level strategy and functional level
strategy can be analyzed in the following way.
 SBU-contd.
 Corporate Level strategy:- It occupies the highest level
strategic decision making and covers actions dealing with
the objective of the firm, acquisition and allocation of
resources and co-ordination of strategies of various SBUs
for optimal performance.
 Business level strategy:-Each SBU sets its own
strategies to make the best use of its resources. At this
level, strategy is a comprehensive plan providing
objectives for SBUs, allocation of resources among
functional areas and coordination between them for
making optional contribution to the achievement of
corporate level objectives.
 SBU-contd.
 Functional level strategy:-It relates to the single
functional operation and the activities involved
therein. Decisions at this level within the organization
are often described as tactical.
Such decisions are guided and constrained by some
overall strategic considerations. Functional strategy
deals with relatively restricted plan providing the
objectives for specific function, allocation of
resources among different operations within that
functional area.
 For example, marketing strategy, a functional
strategy, can be sub-divided into promotion, sales,
distribution, pricing strategies with each sub-function
strategy contributing to functional strategy.
 Strategies at all the three levels are interlinked in
which a higher level strategy generates a lower level
strategy and a lower level strategy contributes to the
achievement of the objectives of v higher level
strategy.