Business policy and strategic management


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Business policy and strategic management

  1. 1. Strategic Management Topic: Business Policy and Strategic ManagementIntroductionBusiness policy as a field of study originated in 1911 when an integrated course in management wasintroduced at Harvard Business School as a part of curriculum. The course was designed with themain objective of improving general management competence. Following a number of expert studieson business education about fifty years later, the Business policy course was made compulsory for allBusiness Schools in USA. Since then, Business Policy was introduced as an integral course in themanagement degree/diploma programmes in many countries including India. However, there hasbeen a shift in focus of the Business Policy course since the 1980s. The latest approach is focussed onStrategic Management.This chapter is devoted to an exposition of the concept of business policy formulation by corporatemanagement, followed by a discussion of the process of strategic planning and management in detail,Nature of Business PolicyBusiness Policy, in a wider sense, refers to decisions about the future of an ongoing enterprise. Theseare decisions which only the top management of an enterprise can take having investigated marketopportunity, appraised the distinctive competence and total resource of the company, and havingcombined the present and potential resources with the opportunities. These are vital, strategicdecisions inasmuch as they determine the relationship between the enterprise and its environment,what it ought to be doing in the years to come, and how it should position itself to take advantage ofthe future market opportunities. Thus, business policy involves setting long-term objectives whichwill guide the destiny of the enterprise, its size and position in the product-market, as well asdeciding on the resources of human abilities, capital plant and equipment, materials and energywhich will be needed to achieve the objectives. In short, business policy consists of top managementdecisions relating to the future direction of business and the crucial problems that affect the success ofthe total enterprise.The necessity of guiding the future direction of business arises at some stage in the case of everyenterprise. So long as a firm is concerned with its survival, its main pre-occupation is with the existingproblems of operational management and decisions are aimed at establishing a stable foothold in themarket. Sooner or later, however, the management must pause and think over what business thecompany is in and what business it would like to be in whether it will continue to be active in thesame line of business or combine new lines of activity with the existing business, enter new marketsegments, or seek to acquire a dominant position in the same market, and so on.An ongoing enterprise having a satisfactory record and continuing to grow and prosper must alsoreview and assess the evolving socio-political, economic and technological environments so as tomodify its goals in accordance with the changing product-market situations. The dynamic nature ofbusiness environment, the present and potential opportunities and threats, the risks of undertakingnew ventures, entering new markets, and such other aspects of business policy are of crucialimportance in decision-making with long-term implications.What specific products or services should be produced? Which products should receive themaximum emphasis? What ought to be the price-quality relationship of the product lines?What are the distinctive characteristics of the product as compared with those of similarcompeting products? At what point of time should the new products be launched? What are the basic objects to be pursued? What is the rate of return on i nvestment to besought? What are the growth objectives to be pursued with respect to sales, and over whattime period? What is the minimum return on investment to be achieved? Strategic decisions are different from operating decisions which relate to d ay-to-dayactivities or current operations, e.g., resource allocation among functional areas and product
  2. 2. -2-lines, scheduling operations, monitoring performance and applying controls. The operating decisionsare aimed at maximising profitability of current operations through pricing and marketing policies,production planning and scheduling, inventory management and control. Strategic decisions alsodiffer from administrative decisions which are concerned with structuring the firms resources so as tocreate a maximum performance potential. These are decisions concerned with establishing authority-responsibility relationships, work-flows, communication, distribution channels, location of facilities,as well as acquisition and development of resources, developing source of raw materials supply,personnel training and development, financing and acquisition of plant and equipment.
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  7. 7. -7-If the elements of strategic vision and corporate mission are combined in a single statement, it may beregarded as a future-oriented mission statement. The mission then helps to communicate bothcorporate vision and purpose. According to some writers, the distinction between strategic vision andcorporate mission is relevant because the majority of corporate mission Statements, presumably in theUnited States, say more about ‘what our business is now’ than ‘what our business will be later’.Can corporate mission statement be the starting point for developing the strategic vision? For onething, the mission statement indicates what business the company is in, and that ought to be the basisof charting a strategic path for the future. Secondly, the product-market coverage of a company needsto be kept in view while communicating the strategic vision as a corporate commitment. A companyproducing video cassettes may be projected as being in entertainment business or informationbusiness, or both. Its strategic vision would naturally depend upon what is projected in the missionstatement. The mission of Cadbury India is to attain leadership position in the confectionery marketand achieve a strong national presence in the food drinks sector. This is clearly a direction-settingstatement from which the strategic vision should emerge.
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