Bussiness policy & strategic management 13 09

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  • 1. BUSSINESS POLICY & STRATEGICMANAGEMENT UNIT—1BUSINESS POLICY OR STRATEGYFORMULATION: ------ Business policy decisions have a frameof reference, decision horizon and decisioncriteria which are characterized by anintegrated view of the organizationalposition in relation to changes in theenvironment and capabilities of organization-----The success and failure of anorganization depends upon the ability &knowledge to formulate good businesspolicy. This ability includes to sense whatinformation is needed and relevant and howit should be ordered to facilitatecomprehensive understanding involvescientific analytical approaches toknowledge , Problems and decisions.
  • 2. It also involves the exercise ofinformed Judgment which is an art; there isno certainty of outcome of such Judgment.The Business Policy or Strategy formulations requires:- i) Identification of opportunities and threats in the company’s environment along with the estimate of risks attaching to the discernible alternatives. ii) Appraisal of the company’s strength and weakness and objective assessment of its actual or potential capacity to take advantage of perceived market needs or cop with the attendant risks, i.e. S W O T analysis.
  • 3. DETERMINANTS OF BUSINESS POLICY : I) External opportunities and constraints II) Internal capabilities, competence and resources. III) Personal values of the executives including propensity to assume risks and IV) Obligations to society and stakeholders.OBJECTIVES/ PURPOSE OF BUSINESSPOLICY :Five key decisions to comprise the overallstrategy of any company are:- i) Customer – mix ii) Product –mix iii) Geographic limits of the markets to be served iv) Competitive emphasis v) Objectives
  • 4. The determination of Business Policy or Strategy formulation involves answering a set of Questions in the relevant areas, such as :i) what is the target group of customers?ii) What are their needs and preferences?iii) What segment of market do they represent?iv) What is the geographic area of the market to be covered?v) What will be market niche?vi) What specific products or services should be produced?vii) Which products should receive the maximum emphasis?viii) What ought to be the Price- Quality relationship of the Product lines?ix) What are the distinctive characteristics of the Product?x) Can these characteristics be differentiated from those of similar competing products?
  • 5. xi) What are the end uses to be served by the products?xii) At what point of time should the new products be launched?xiii) What factors should be stressed by the company to secure a unique competitive advantage?xiv)Will it be the price ,Quality, Service, Design, Special Characteristics?xv) What would be done better than the competitors?xvi)What are the basics objects to be pursued?xvii)What is the rate of return on investment to be sought?xviii)What should be gross profit margin on sales?xix)What are the growth objectives to be pursued with respect to sales, Total assets, net worth or market share and over what time period?xx) What is the maximum return on investment to be achieved?
  • 6. The IMPORTANCE OF BUSINESS POLICYas fields of study and as a component ofManagement development programs are:- 1)It Provides an integrated view of Management based on Knowledge and Experience 2) The Complexities of Business and constraints of Managing Business in a competitive, dynamic environment and brought home with real – life bearing. 3)It provides a broader perspective of learning in as much as it cuts across the boundaries of Functional Management and draws upon other allied disciplines for knowledge. 4)The processes of policy formulation and strategic decision- making can be understood with a clear perspective of the internal and external environment making managers more receptive to the suggestions and ideas of the senior executives.
  • 7. ORIGIN AND DEVELOPMENTS OFBUSINESS POLICY in practice has beentreated as a response to demands ofBusiness conditions and overlappingphases in the execution have beendistinguished in terms of four paradigmshifts:FIRST PHASE till MID 1930’s(Paradigm of Adhoc Policy) :- Adhoc policy- making necessitated bythe expansion of American firms in terms ofProduct – markets and customers and theconsequent needs for replacing informalcontrols and coordination by the framing offunctional policies to guide managers.SECOND PHASE 1930’s & 1940’s(Paradigm of Planned Policy) :- Planned Policy formulation instead ofAdhoc policy – making and shift ofemphasis to the Integration of Functional
  • 8. areas calles for in the context ofenvironmental changes.THIRD PHASE--- 1960’s(Paradigm of Strategy) :- Rapid pace of environmentalchanges and increasing complexity ofManagement prompting a critical look at theconcept of business in relation to itsenvironment , hence the need for strategicdecisions.FOURTH PHASE ---- 1980’s( Paradigm of strategic management) :- Shift of focus to the strategicprocesses and the responsibility of generalmanagement in resolving strategiec issues.STRATEGY :--
  • 9. Strategy of a business enterprise consists ofwhat management decides about the futuredirection and scope of the business. Itentails managerial choice among alternativeaction programmes, commitment to specificproduct markets, competitive moves andbusiness approaches to achieve enterpriseobjectives. “ A company’s strategy consists of thecombination of competitive moves andbusiness approaches that managers employto please customers, compete successfullyand achieve organizational objectives”. Master Strategy :-- A Master Strategy is determination ofthe mission and long- term objectives of anorganization and the policies necessary forachieving the mission and objectives. Programme Strategies :-- Programme Strategies are specificaction plans drawn up to accomplish anyestablished objectives within a timeframe.
  • 10.  Strategic decisions are primarilyconcerned with external rather than internalproblems, and more specifically with theselection of the product- mix which will beproduced, and the markets to which theproducts will be sold, thus establishing “animpedance match” between theorganization and its environment. Operating Decisions are relate to day-to-day activities or current operations. e.g.Resource allocation among functional areasand product lines, scheduling operations,monitoring performance and applyingcontrols, all aimed at maximizing profitabilityof current operations through pricing andmarketing policies, production planning andscheduling, inventory management andcontrol. Administrative Decisions are connectedwith structuring the firm’s resources as tocreate a maximum performance potential,i.e. decisions concerned with establishing
  • 11. authority-responsibility relationships, workflows communication, distribution channels,location of facilities as well as acquisitionand development of resources, developingsources of raw material supply, personneltraining and development, financing andacquisition of plant & equipment.Levels Of Strategy :1) Corporate-level Strategy :-- At the Corporate level, strategicdecisions relate to organization- widepolicies and are most useful in the case ofmulti-divisional companies or firms havingwide-ranging business interests. The natureof strategic decisions at the corporate leveltend to value-oriented, conceptual and lessconcrete. e.g.- financial policy decisionsinvolving acquisition, diversification andstructural redesigning.2) Business Unit Strategy :-- Startegic decision at Business levelare primarily concerned with the immediate
  • 12. industry or product-market issues, and withpolicies bearing on the integration of thefunctional units. Business-level strategicdecisions translate the general statementsof direction and intent generated at thecorporate level into concrete functionalobjectives and strategies for divisions orstrategic business units (SBUs). e.g.policies involving new product development,marketing mix, research and development,personnel etc.  Difference between Corporate Strategyand Business Strategy : i) corporate strategy applies to the whole enterprise, while Business strategy defines the choice of product or service and market of individual businesses within the firm. ii) Corporate strategy defines the business in which company will compete, particularly focusing on resources to convert distinctive competence into competitive advantage, while Business strategy
  • 13. determines how a company will compete in a given business and position itself among competitors.3) Functional Strategy : Functional strategy involvesdecision-making with respect to specificfunctional areas- Production, Marketing,Personnel, Finance etc. Decisions atFunctional level is “Tactical Decision”. Whilecorporate & Business-level strategies areconcerned with “doing the right things” ,Functional strategies stress on “doing thingsright”.4) Operating- level strategy: Operating-level strategy isconcerned with strategic approaches andinitiatives for managing frontline operatingunits(like plants, sales districts etc. and forhandling day to day tasks of strategiessignificance (like advertising compaign,purchasing materials, inventory control,maintenance etc.). Operating strategiesadd further detail and completeness to
  • 14. functional strategies as also to the overallbusiness plan.STRATEGIC PLANNING : Strategic Planning is “the process ofdeciding on objectives, on the changes inthe objectives, on the resources usedacquisition, use and disposition of theseresources.Strategic Planning in Small Business Firm : Small firms generally have a fewproducts or services to offer, mainlybecause their resources and capabilities arelimited. i) The planning Process in small firms is bound to be less systematic and explicit as well as less formal. ii) Strategy should be formulated by the top management team at the conference table. iii) Judgement, experience, intuition and well-guided discussion are the key to
  • 15. success, not staff work and mathematical models. iv) Strategic planning may serve as a learning process. Managers of small firms may progressively come to know about the capabilities and limitations of the firm as well as about opportunities and threats in the environment.Strategic Planning in Not- ProfitOrganisation : Many of these organizationsare funded by way of grants and donationsfrom government and public trusts.Discretionary powers of internalmanagement team are thus subject to theoverall regulation of the funding bodies. Top management of not-for-profitorganizations are less likely to engage instrategic planning. Some of theseorganizations have NO strategies at all.Rather they seem motivated more by short-term budget cycles and personal; goals thanby any interest in re-examining their
  • 16. purpose or mission in the light of alteredenvironmental circumstances. Strategicefforts in Colleges, Hospitals, Libraries,Local Governments were appearingregularly mainly due to the pressurescreated by reduction in government fundingand presence of businessmen on theboards of trustees of those organizations.Why is Strategic Planning Necessary?Ans: The advantages of a systemicapproach to strategic planning are: a) Provide necessary guidance to the entire organisation about what is expected to be achieved and how b) Make Managers more alert to new opportunities and potential threats. c) Unify organizational efforts leading to greater harmony and goal congruence. d) Create a more proactive management posture e) Promote a constantly evolving business model so as to ensure
  • 17. bottom-line success for the enterprise f) Provide the rationale for evaluating competing budget requests for steering resources into strategy- supportive and results-producing areas.STRATEGIC MANAGEMENT :-- Strategic management is a set ofdecisions and actions resulting informulation and implementation ofstrategies designed to achieve theobjectives of an organization.-- Strategic management is a stream ofdecisions and actions which leads todevelopment of an effective strategy orstrategies to help achieve corporateobjectives.-- Strategic management is the formulationand implementation of plans and carryingout of activities relating to the matters which
  • 18. are of vital, pervasive, or continuingimportance to the total organisation.-- Strategic management is a systematicapproach to a major and increasinglyimportant responsibility of generalmanagement to position and relate the firmto its environment in a way which will assureits continued success and make it securefrom surprises.-- In Wider sense Strategic management isthe process which deals with fundamentalorganizational renewal and growth with thedevelopment of the strategies, structuresand systems necessary to achieve suchrenewal and growth and with theorganizational systems needed to effectivelymanage the strategy formulation andimplementation processes.-- Strategic management is the processthrough which organizations analyse andlearn from their internal and externalenvironments, establish strategic direction,
  • 19. create strategies that are intended to helpachieve established goals and executethese strategies, all in an effort to satisfykey organizational stakeholders.Benefits of Strategic Management : 1) Financial benefits 2) Enhanced capability of problem prevention 3) Improved quality of Strategic decisions through group interaction 4) Greater Employee Motivation 5) Reduction of gaps and overlaps in activities 6) Minimum resistance to change