Business Policy and Strategic Management


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Business Policy and Strategic Management

  1. 1. Business Policy and Strategic Management Prof. Prashant Mehta National Law University, Jodhpur
  2. 2. Business Policy and Strategic Management Introduction Business policy as Discipline Meaning and Nature of Management What is Strategy Generic Strategic Alternatives The Dynamics of Competitive Strategy Strategic Management Strategic decision Making The Task of Strategic Management Vision, Mission, and Objectives Strategic Levels n Organization
  4. 4. BusinessPolicyas Discipline • Need to develop a multi-disciplinary understanding of Business • A capstone course that introduces accountants to marketing, marketers to operations, production managers to human resources…. This capstone course was often referred as BUSINESS POLICY at that time. • Business policy came from use of planning techniques from managers. • Then came anticipation of future through preparation of budgets and using control system like capital budgeting and Management by Objectives (MBO). • Then came long range planning which was later replaced by Strategic Planning, then replaced by Strategic Management which described the process of strategic decision making.
  5. 5. BusinessPolicyas Discipline • “Business Policy, basically, deals with decisions regarding the future of an ongoing enterprise. Such policy decisions are taken at the top level after carefully evaluating the organizational strengths and weaknesses in relation to its environment”. • Integrates - the knowledge and methods learnt in functional courses such as production , finance ,marketing , HR etc. • Develops - the analytical skills and decision-making capabilities of students through case studies, industry specific study and data. • Promotes Positive Attitudes - ,ethical values and healthy ways of thinking taking a holistic view of the internal as well as external stakeholders of an organization. • Business Policy tends to emphasize on the rational-analytical aspect of strategic management.
  6. 6. Meaningand Nature of Management The term Management can be used in two major contexts: • Management is key group, responsible for integrating resources (4M) and mobilizing diverse resources, increasing productivity, facilitate organizational change, adaption, resolution of conflicts. Besides this success of organization depends on competence and character of management. • Interrelated functions, organizational processes, design of organizational structure, determination of goals, acquisition and allocation of resources, installation of control and communication system depends on management. Management is influence process to make things happen. Influence is backed by power, competence, knowledge, and resources. Influence is not unilateral but multilateral.
  7. 7. Management Management in all business and human organization activity is simply the act of getting people together to accomplish desired goals and objectives. Management comprises planning, organizing, staffing, leading or directing, facilitating and controlling or manipulating an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.
  8. 8. ManagementModels TRADITIONAL Managing Assets Focus on Managing Numbers Hierarchical Dependent Parts Reactive Command and Control Blame Culture Risk Averse MODERN Managing Resources & Capabilities Focus on Creating Value Network Independent Parts Responsive Empowered Employees Encouraging Radical Ideas Risk Taking
  9. 9. Whatis Strategy “No Body Really Knows What Strategy is”. The Economist
  10. 10. 1. What is Strategy: Explained? Strategy is a LOT like Sailing 2. Sailing Race What do we need? Place to go Our GOAL
  11. 11. SailingRace: Strategy Elements Activity Element Place To Go Goal Sailing Plan, Navigation , Charts, Timetable Plan Boat, Supplies, Money, Food, Information Resources Captain, Decision-maker Leadership Procedures, Measurement Systems People, Skills, Experience Staff/Skills Decisions, Tasks Structure Norms, Culture Core Values
  12. 12. SailingRace Having designed our Strategy  We set sail  What happens?? Start Finish Start Finish
  13. 13. Whatis Strategy • Derivation from the Greek work “strategos” – “a general” or to “plan the destruction of one’s enemies through effective use of resources” • Strategy is long range blueprint of an organizations desired image, direction, and destination what it wants to be, what it wants to do, and where it wants to go. • The decisions and actions that determine the long-run performance of an organization. • intended strategy  Plan for action • emergent strategy Process • realized strategy  Outcome Source- Henry Mintzberg, 1987
  14. 14. CorporateStrategy: Characteristics • Generally Long Range in Nature, though Short Range is Possible • Action oriented and more specific than objectives • Multipronged, Integrated, Flexible, and Dynamic • Formulated by Top Management, Sub strategy by middle-low level employees • Helps cope up with competitive and complex situations • Make best use of SWOT analysis • Effective deployment and utilization of organizational resources • Helps in handling environmental uncertainties and complexities • Helps in function of decision making • It helps to overcome impulsive and crisis decisions, false starts, misdirected moves, wasted resources uses etc. • Helps in determination of business lines, expansion and growth, vertical and horizontal integration, diversification, takeovers, mergers, new investments, disinvestments, R&D projects and so on.
  15. 15. So Finally Strategy is ………………………….. • Corporate Strategy is operationalized by division or functional strategies. • Strategy is not a substitute for management. • Strategy can never be perfect, flawless, and optimal because it is made in response to situation which is constantly changing. • Good strategy, makes allowances for possible miscalculation and unanticipated events. Four Generic Strategic Alternatives by Willaim: F Glueck and Lawrence R Jauch • Stability Strategy • Expansion Strategy • Retrenchment Strategy • Combination Strategy
  16. 16. Stability Strategies • There are a number of circumstances in which the most appropriate growth stance for a company is stability, rather than growth. Often, this may be used for a relatively short period, after which further growth is planned. • Pause and Then Proceed: This stability strategy alternative (essentially a timeout) may be appropriate in either of two situations: (a) the need for an opportunity to rest, digest, and consolidate after growth or some turbulent events - before continuing a growth strategy, or (b) an uncertain or hostile environment in which it is prudent to stay in a "holding pattern" until there is change in or more clarity about the future in the environment. • No Change: This alternative could be a cop-out, representing indecision or timidity in making a choice for change., e.g., a small business in a small town with few competitors.
  17. 17. ExpansionStrategy • We further define an expand strategy as one in which we are growing significantly faster than the market or market segment is growing overall. Eg. Change in customer group, function, and technology. • To follow an expand strategy, a company must decide to provide the resources which will support the targeted growth rate. Whatever choices there may be, business owners who are in the hot seat to make a judgment, should consider the best possible option that is in line with their main objectives. • Expansion though Diversification – Entry into new product, new market etc. • Expansion through Merger and Acquisition - Normally, a merger means the combination of two business firms that results into one bigger entity. Acquisition or acquiring refers to the act of taking control over another corporation. By taking control over a another business entity, one would hope to gain access to certain key functions, skill or knowledge in a particular industry.
  18. 18. RetrenchmentStrategy • Turnaround: This strategy, dealing with a company in serious trouble, attempts to resuscitate or revive the company through a combination of contraction (general, major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner company). • Captive Company Strategy: This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary. • Sell Out: If a company in a weak position is unable or unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation). • Liquidation: When a company has been unsuccessful in or has none of the previous three strategic alternatives available, the only remaining alternative is liquidation, often involving a bankruptcy.
  19. 19. CombinationStrategy • Corporate planning aimed at achieving two or more goals (such as consolidation, growth, stability) simultaneously. • Eg. An organization may seek stability in some areas of activity, expansion in some, and retrenchment in the others.
  20. 20. 21 CriticalTasks of Strategic Management 1 Formulate the company’s mission 2 Develop company profile, reflecting its internal conditions 3 Assess company’s external environment 4 Analyze company’s options 5 Identify most desirable options 6 Select long-term objectives and grand strategies 7 Develop annual objectives and short-term strategies 8 Implement the strategic choices 9 Evaluate success of the strategic process
  21. 21. TheDynamicsof CompetitiveStrategy • Strategic thinking involves orientation of firms internal environment with changes in external environment. • In external environment, economic and technical factors helps in achieving opportunities and closing threats. • Expectation of society determines competitive strategy. • Strength and weakness are internal factors and determine corporate strategy.
  22. 22. Strategic Management • Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. • Strategic Management can be used to determine mission (to give it direction), vision, values, goals and objectives (means and methods of accomplishing its mission), roles and responsibilities, timelines, business portfolio, and functional plans etc. • The process is strategic because it involves preparing the best way to respond to the circumstances of the organization's environment, whether or not its circumstances are known in advance, often must respond to dynamic and even hostile environments. • Value creation is most important aspect of strategic process.
  23. 23. Framework of Strategic Management Process Stage 1: Where are we now (Beginning) Stage 2: Where we want to be (End) Stage 3: How we can get there (Means) Stage 4: Which is best way (Evaluation) Stage 5: How can ensure arrival (Control)
  24. 24. Strategic ManagementProcess • Stage 1: Involves situational analysis with respect to environment. For eg. Relative market position, corporate image, SWOT analysis etc. • Stage 2: Involves goal setting after finalizing vision and mission. • Stage 3: Exploring various alternatives that organization has. • Stage 4: Selecting the best suitable alternative after making SWOT analysis. • Stage 5: Involves situational analysis and monitoring.
  25. 25. Importanceof Strategic Management • Survival and growth of organization depends on strategic management (analysis, formulation and implementation) – win-win situation. • It results in higher organizational performance as they become more proactive. • It requires that managers examine and adapt to business environment changes, there by they are able to control their destiny in better way. • It coordinates diverse organizational units, helping them focus on organizational goals and provide framework for better business decisions. • Helps organizations to identify the available opportunities and identify ways and means to reach them. • Serves as corporate defense mechanism against mistakes and pitfalls and help avoid costly mistakes. • Helps organizations to evolve core competencies and competitive advantage to help it fight for survival and growth.
  26. 26. Strategic DecisionMaking • Decision making is choosing particular course of action out of several alternative courses for accomplishment of organizational goals. • Decisions may be major, minor, rational, general, at various levels, strategic. Dimensions of Strategic Decisions: • Strategic issues requires top management decisions • Strategic issues involves allocation of large amount of company’s resources • Strategic issues impacts long term sustainability of firm • Strategic issues are future oriented • Strategic issues have major multifunctional /multi-business consequences • Strategic issues necessitate consideration of external and internal environmental factors
  27. 27. Task of Strategic Management Strategy making / Strategy implementing process consists of five interrelated managerial task: • Setting Vision And Mission: Where organization is headed, provide long term direction, infuse sense of purpose for existence. • Setting Objectives: Specific performance outcome to achieve • Crafting Strategy To Achieve Desired Outcomes: Results • Implementing And Executing The Chosen Strategy Efficiently And Effectively: Not to deviate from what is planned strategy • Evaluating Performance And Initiating Corrective Action: Adjust vision, objectives, and strategies in light of changing environmental conditions.
  28. 28. Perform External Audit Perform Internal Audit Establish Long-Term Objectives Generate, Evaluate, And Select Strategies Implement Strategies: Management Issues Implement Strategies: Marketing, Fin /Acct, R&D, MIS issues Measure And Evaluate Performance Develop Vision & Mission Statements StrategicManagementModel St. Formulation St. Implementation St. Evaluation
  29. 29. Developing a Strategic Vision • Involves thinking strategically about • Firm’s future business plans • Where to “go” • The vision is more broad and future oriented • The goal on the horizon • Tasks include • Creating a roadmap of the future • Deciding future business position to stake out • Providing long-term direction • Giving firm a strong identity
  30. 30. Characteristics of a Strategic Vision • Charts a company’s future strategic course • Defines the business makeup for 5 years (or more) • Specifies future technology-product-customer focus • Indicates capabilities to be developed • Requires managers to exercise foresight
  31. 31. Challenges inForming a Strategic Vision • How to creatively prepare a company for the future • How to keep the company responsive to • Evolving customer needs • Competitive pressures • New technologies • New market opportunities • Growing or shrinking opportunities
  32. 32. Missions vs. Strategic Visions • A mission statement focuses on current business activities -- “who we are and what we do” • Current product and service offerings • Customer needs being served • Technological and business capabilities • A strategic vision concerns a firm’s future business path -- “where we are going” • Markets to be pursued • Future technology-product-customer focus • Kind of company that management is trying to create
  33. 33. Characteristics of a Mission Statement • Defines current business activities or its present business scope, The mission is more focused – how you will get to the horizon • Highlights boundaries of current business and Conveys • Who we are, • What we do, and • Where we are now • Company specific, not generic — so as to give a company its own identity and what needs it is trying to satisfy, indicate boundary of its operations and mission statement is highly personalized A company’s mission is not to make a profit ! The real mission is always—“What will we do to make a profit?”
  34. 34. Communicating the Vision-Mission • An exciting, inspirational vision • Challenges and motivates workforce • Arouses strong sense of organizational purpose • Induces employee buy-in • Galvanizes people to live the business Managerial Value of a Well-Conceived Strategic Vision and Mission • Crystallizes long-term direction • Reduces risk of rudderless decision-making • Conveys organizational purpose and identity • Keeps direction-related actions of lower-level managers on common path • Helps organization prepare for the future
  35. 35. Examples: Mission and Vision Statements Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Our Mission: Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet. Intel
  36. 36. Examples: Mission and Vision Statements Otis Elevator Our vision to provide world class experience Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world. Our business is renting cars. Our mission is total customer satisfaction. Avis Rent-a-Car
  37. 37. UnderstandingMissionand Purpose Mission is a statement that organization plays in society. Purpose is anything that organization strives for . In business policy both these terms are used either singly or jointly that is both mission and purpose go hand in hand.
  38. 38. BusinessGoals Goals are close - ended statements of what one wishes to accomplish, with no quantification of what is to be achieved and no time frame for completion (precise and expressed in specific terms). • They provide targets for assessing progress in achieving the vision Goals are: Directional – Move you toward the general objectives of our vision statement Reasonable – Are practical and obtainable; not extreme Inspiring – Are challenging; affect you positively Visible – Are easy to visualize Eventual – Will be fulfilled at a future time
  39. 39. Long-TermBusinessGoals Examples of goals might be: • Maintain a profitable farming operation • Be considered the top farmer in the county • Be on the cutting edge of technology • Be able to service loans on time • Create employment for family members • Obtain a leadership position in the community
  40. 40. Objectives Objective are open ended attribute that denotes the future state of outcomes that is are the end results of planned activities. • They should state what is to be accomplished by when and should be quantified. • Achievement of objectives should result in the fulfillment of the mission. Objectives are: Specific – The objective achieves a particular, detailed result. Measurable – There is a means to determine the objective. Attainable – They are within economic and physical capabilities. Rewarding – They are profitable and self-satisfying. Timed – They have a deadline
  41. 41. Objectives All organizations have objectives and pursuit of objectives is unending process. The whole organizational structure is designed to facilitate achievement of objectives. Examples of objectives might be: • To increase gross revenues 5 percent each year • To achieve 12-15 percent return on equity within 4 years • To reduce fixed expenses by 7 percent within 3 years • To achieve 21 pigs per sow per year by 2004 • To hold a position on the local school board within the next 5 years
  42. 42. Areas for DefiningGoals and Objectives • Market standing • Productivity • Physical and financial resources • Profitability • Innovation • Manager performance and development • Worker performance and attitudes • Public and social responsibilities
  43. 43. Strategic Managers In companies there are two main type of managers: • General Managers: Responsible for overall performance of the company / subunit /division. • Functional Manager: Responsible for supervising some function like Finance, Accounting, Marketing, R&D, Operations etc. • Figure in next slide on levels of strategic management shows the organization of multidivisional company. It shows three main levels of management viz Corporate, Business, and Functional. General managers are found at first two levels and their strategic roles differ depending on the sphere of responsibility.
  44. 44. Strategic Levels in Organizations
  45. 45. SomeLevels of Strategy The Impact of strategy is dramatically different depending on the level of strategy. • Global Strategy • Corporate Strategy • Business Strategy • Functional Strategy • Operational Strategy
  46. 46. Global-LevelStrategies • Multi-domestic • International • Global • Transnational
  47. 47. CorporateLevel Strategy • What businesses are we in? What businesses should we be in? • Four areas of focus • Diversification management (acquisitions and divestitures) • Synergy between units • Investment priorities • Business level strategy approval (but not crafting) • Vertical integration • Strategic alliances • Acquisitions • New ventures • Business portfolio restructuring
  48. 48. Corporate-LevelStrategies Firm Status Valuable strengths Critical weaknesses Environmental Status Abundant environmental opportunities Critical environmental threats Corporate growth strategies Concentric Diversification (Economies of Scope) Conglomerate Diversification (Risk Mgt.) Corporate retrenchment strategies Can still go for business-level growth (economies of scale) Corporate stability strategies
  49. 49. BusinessLevel Strategy • How do we support the corporate strategy? • How do we compete in a specific business arena? • Three types of business level strategies: • Low cost producer • Differentiator • Focus • Four areas of focus • Generate sustainable competitive advantages • Develop and nurture (potentially) valuable capabilities • Respond to environmental changes • Approval of functional level strategies
  50. 50. Business-LevelStrategies • Cost leadership • Attaining, then using the lowest total cost basis as a competitive advantage. • Differentiation • Using product features or services to distinguish the firm’s offerings from its competitors. • Market niche focus • Concentrating competitively on a specific market segment.
  51. 51. Functional/ OperationalLevel Strategy • Functional: How do we support the business level strategy? • Operational: How do we support the functional level strategy? • An example of different types of strategy. • Business L.S.: Become the low cost producer of widgets • Functional L.S. (Mfg.): Reduce manufacturing costs by 10% • Operational (Plant #1): Increase worker productivity by 15%