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Business Policy & Strategic

Management : Assignment

Submitted to: Dr.Ruchi Singh

Submitted by:

Rishabh Rastogi

B.B.A. - VI Semester

National P.G. College

2008-2011
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Acknowledgements

No man is an island unto himself, it would be unfair on my part if we fail to

mention the names of those who at different moments in their respective ways
facilitated the completion of this project and to whom we are deeply indebted.

We are extremely grateful to Dr.Ruchi Singh to have taken us under her guidance;
providing us with expert guidance along with reasonable freedom and autonomy.

The project would not have been completed without the cooperation of our
friends .

We feel an unbound sense of gratitude towards our parents who allowed us to

pursue this course and continuously coaxed us to complete this project.

I thank God for all that is.

RISHABH RASTOGI
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Introduction

What is Business Policy and Strategic Management ?

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken
by the subordinates in an organization. It permits the lower level management to
deal with the problems and issues without consulting top level management every
time for decisions. Business policies are the guidelines developed by an
organization to govern its actions. They define the limits within which decisions
must be made. Business policy also deals with acquisition of resources with which
organizational goals can be achieved. Business policy is the study of the roles and
responsibilities of top level management, the significant issues affecting
organizational success and the decisions affecting organization in long-run.

1) A business policy is an implied overall guide setting up boundaries that supply

the general limit and direction in which managerial action will take place.
2) A business policy is one, which focuses attention on the strategic allocation of
scarce resources. Conceptually speaking strategy is the direction of such resource
allocation while planning is the limit of allocation
3) A business policy represents the best thinking of the company management as to
how the objectives may be achieved in the prevailing economic and social
conditions
4) A business policy is the study of the nature and process of choice about the
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future of independent enterprises by those responsible for decisions and their

implementation
5) The purpose of a business policy is to enable the management to relate properly
the organization’s work to its environment Business policies are guides to action or
channels to thinking

Business policies generally have a long life. They are established after a careful
evaluation of various internal and external factors having an impact on the firm’s
market standing As and when circumstances change in a major way the firm is
naturally forced to shift gears, rethink and reorient its policies. The World Oil
crisis during the 70s has forced many manufacturers all over the globe tom reverse
the existing practices and pursue a policy of manufacturing fuel efficient cars
Therefore, policies should be changed in response to changing environmental and
internal system conditions.

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 terms of product price,
quality, leadership position, resources etc., in relation to its environment. Once
established the policy decisions shape the future of a company channel the
available resources along desired lines and direct the energies of people working at
various levels toward predetermined goals. In a way, business policy implies the
choice of purposes, the shaping of organizational identity and character the
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continuous definition of what is to be achieved and the deployment of resources for

achieving corporate goals.

There are many types of policies – marketing policies, financial policies,

production policies, personnel policies to name a few in every organization.
Within each of these areas more specific policies are developed. For example,
personnel policies may cover recruitment training promotion and retirement
policies. Viewed from a systems angle, policies form a hierarchy of guides to
managerial thinking. At the top of level policy statements are broad. The
management is responsible for developing and approving major comprehensive
company policies. Middle managers usually establish less critical policies relating
to the operation of their sub units. Policies tend to be more specific at lower levels.
The manager’s job is to ensure the consonance of these policies, each must
contribute to the objectives of the firms and there should be no conflict between
sub system policies.
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Formation of the business policy

 The mission of the business is the most obvious purpose—which may be,

for example, to make soap.

 The vision of the business reflects its aspirations and specifies its intended
direction or future destination.

 The objectives of the business refers to the ends or activity at which a

certain task is aimed.

 The business's policy is a guide that stipulates rules, regulations and

objectives, and may be used in the managers' decision-making. It must be
flexible and easily interpreted and understood by all employees.

 The business's strategy refers to the coordinated plan of action that it is

going to take, as well as the resources that it will use, to realize its vision and
long-term objectives. It is a guideline to managers, stipulating how they
ought to allocate and utilize the factors of production to the business's
advantage. Initially, it could help the managers decide on what type of
business they want to form.
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Definition of Strategic Management

Strategic management is a field that deals with the major intended and
emergent initiatives taken by general managers on behalf of owners,
involving utilization of resources, to enhance the performance of firms in
their external environments. It entails specifying theorganization's mission,
vision and objectives, developing policies and plans, often in terms of
projects and programs, which are designed to achieve these objectives, and
then allocating resources to implement the policies and plans, projects and
programs. A balanced scorecard is often used to evaluate the overall
performance of the business and its progress towards objectives. Recent
studies and leading management theorists have advocated that strategy needs
to start with stakeholders expectations and use a modified balanced
scorecard which includes all stakeholders.

Strategic management is a level of managerial activity under setting goals

and over Tactics. Strategic management provides overall direction to the
enterprise and is closely related to the field of Organization Studies. In the
field of business administration it is useful to talk about "strategic
alignment" between the organization and its environment or "strategic
consistency." According to Arieu (2007), "there is strategic consistency
when the actions of an organization are consistent with the expectations of
management, and these in turn are with the market and the context."
Strategic management includes not only the management team but can also
include the Board of Directors and other stakeholders of the organization. It
depends on the organizational structure.
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“Strategic management is an ongoing process that evaluates and controls the

business and the industries in which the company is involved; assesses its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then reassesses each strategy annually or quarterly [i.e.
regularly] to determine how it has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new economic
environment., or a new social, financial, or political environment.”

Strategy formation
Strategic formation is a combination of three main processes which are as
follows:
 Performing a situation analysis, self-evaluation and competitor analysis:
both internal and external; both micro-environmental and macro-
environmental.
 Concurrent with this assessment, objectives are set. These objectives should
be parallel to a time-line; some are in the short-term and others on the long-
term. This involves crafting vision statements (long term view of a possible
future), mission statements (the role that the organization gives itself in
society), overall corporate objectives (both financial and strategic), strategic
business unit objectives (both financial and strategic), and tactical
objectives.
 These objectives should, in the light of the situation analysis, suggest a
strategic plan. The plan provides the details of how to achieve these
objectives.
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Strategy evaluation

 Measuring the effectiveness of the organizational strategy, it's extremely

important to conduct a SWOT analysis to figure out the internal strengths
and weaknesses, and external opportunities and threats of the entity in
business. This may require taking certain precautionary measures or even
changing the entire strategy.

In corporate strategy, Johnson, Scholes and Whittington present a model in which

strategic options are evaluated against three key success criteria:[3]

 Suitability (would it work?)

 Feasibility (can it be made to work?)

 Acceptability (will they work it?)

Suitability

Suitability deals with the overall rationale of the strategy. The key point to
consider is whether the strategy would address the key strategic issues underlined
by the organisation's strategic position.

 Does it make economic sense?

 Would the organization obtain economies of scale or economies of scope?

 Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

 Ranking strategic options

 Decision trees
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Feasibility
Feasibility is concerned with whether the resources required to implement
the strategy are available, can be developed or obtained. Resources
include funding, people, time and information.
Tools that can be used to evaluate feasibility include:
 cash flow analysis and forecasting
 break-even analysis
 resource deployment analysis
Acceptability
Acceptability is concerned with the expectations of the identified
stakeholders (mainly shareholders, employees and customers) with the
expected performance outcomes, which can be return, risk and stakeholder
reactions.
 Return deals with the benefits expected by the stakeholders (financial and
non-financial). For example, shareholders would expect the increase of their
wealth, employees would expect improvement in their careers and customers
would expect better value for money.
 Risk deals with the probability and consequences of failure of a strategy
(financial and non-financial).
 Stakeholder reactions deals with anticipating the likely reaction of
stakeholders. Shareholders could oppose the issuing of new shares,
employees and unions could oppose outsourcing for fear of losing their jobs,
customers could have concerns over a merger with regards to quality and
support.
Tools that can be used to evaluate acceptability include:
 what-if analysis
 stakeholder mapping
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General approaches
In general terms, there are two main approaches, which are opposite but
complement each other in some ways, to strategic management:
 The Industrial Organizational Approach
 based on economic theory — deals with issues like competitive
rivalry, resource allocation, economies of scale
 assumptions — rationality, self discipline behaviour, profit
maximization
 The Sociological Approach
 deals primarily with human interactions
 assumptions — bounded rationality, satisfying behaviour, profit sub-
optimality. An example of a company that currently operates this way
is Google. The stakeholder focused approach is an example of this
modern approach to strategy.

Strategic management techniques can be viewed as bottom-up, top-down,

or collaborative processes. In the bottom-up approach, employees submit
proposals to their managers who, in turn, funnel the best ideas further up the
organization. This is often accomplished by a capital budgeting process.
Proposals are assessed using financial criteria such as return on
investment or cost-benefit analysis. Cost underestimation and benefit
overestimation are major sources of error. The proposals that are approved
form the substance of a new strategy, all of which is done without a grand
strategic design or a strategic architect. The top-down approach is the most
common by far. In it, the CEO, possibly with the assistance of a strategic
planning team, decides on the overall direction the company should take.
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Some organizations are starting to experiment with collaborative strategic

planning techniques that recognize the emergent nature of strategic
decisions.
Strategic decisions should focus on Outcome, Time remaining, and current
Value/priority. The outcome comprises both the desired ending goal and the
plan designed to reach that goal. Managing strategically requires paying
attention to the time remaining to reach a particular level or goal and
adjusting the pace and options accordingly. Value/priority relates to the
shifting, relative concept of value-add. Strategic decisions should be based
on the understanding that the value-add of whatever you are managing is a
constantly changing reference point. An objective that begins with a high
level of value-add may change due to influence of internal and external
factors. Strategic management by definition, is managing with a heads-up
approach to outcome, time and relative value, and actively making course
corrections as needed.

The strategy hierarchy

In most (large) corporations there are several levels of management.
Corporate strategy is the highest of these levels in the sense that it is the
broadest - applying to all parts of the firm - while also incorporating the
longest time horizon. It gives direction to corporate values, corporate
culture, corporate goals, and corporate missions. Under this broad corporate
strategy there are typically business-level competitive strategies and
functional unit strategies.
Corporate strategy refers to the overarching strategy of the diversified
firm. Such a corporate strategy answers the questions of "which businesses
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should we be in?" and "how does being in these businesses create synergy
and/or add to the competitive advantage of the corporation as a
whole?" Business strategy refers to the aggregated strategies of single
business firm or a strategic business unit (SBU) in a diversified corporation.
According to Michael Porter, a firm must formulate a business strategy that
incorporates either cost leadership,differentiation, or focus to achieve a
sustainable competitive advantage and long-term success. Alternatively,
according to W. Chan Kim and Renée Mauborgne, an organization can
achieve high growth and profits by creating a Blue Ocean Strategy that
breaks the previous value-cost trade off by simultaneously pursuing both
differentiation and low cost.
Functional strategies include marketing strategies, new product
development strategies, human resource strategies, financial strategies, legal
strategies, supply-chain strategies, and information technology management
strategies. The emphasis is on short and medium term plans and is limited to
the domain of each department’s functional responsibility. Each functional
department attempts to do its part in meeting overall corporate objectives,
and hence to some extent their strategies are derived from broader corporate
strategies.
Many companies feel that a functional organizational structure is not an
efficient way to organize activities so they have reengineeredaccording to
processes or SBUs. A strategic business unit is a semi-autonomous unit
that is usually responsible for its own budgeting, new product decisions,
hiring decisions, and price setting. An SBU is treated as an internal profit
centre by corporate headquarters. A technology strategy, for example,
although it is focused on technology as a means of achieving an
organization's overall objective(s), may include dimensions that are beyond
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the scope of a single business unit, engineering organization or IT

department.
An additional level of strategy called operational strategy was encouraged
by Peter Drucker in his theory of management by objectives(MBO). It is
very narrow in focus and deals with day-to-day operational activities such as
scheduling criteria. It must operate within a budget but is not at liberty to
adjust or create that budget. Operational level strategies are informed by
business level strategies which, in turn, are informed by corporate level
strategies.
Since the turn of the millennium, some firms have reverted to a simpler
strategic structure driven by advances in information technology. It is felt
that knowledge management systems should be used to share information
and create common goals. Strategic divisions are thought to hamper this
process. This notion of strategy has been captured under the rubric
of dynamic strategy, popularized by Carpenter and Sanders's textbook [1].
This work builds on that of Brown and Eisenhart as well as Christensen and
portrays firm strategy, both business and corporate, as necessarily embracing
ongoing strategic change, and the seamless integration of strategy
formulation and implementation. Such change and implementation are
usually built into the strategy through the staging and pacing facets.

Strategic change
In 1968, Peter Drucker (1969) coined the phrase Age of Discontinuity to
describe the way change forces disruptions into the continuity of our lives.
[42]
 In an age of continuity attempts to predict the future by extrapolating
from the past can be somewhat accurate. But according toDrucker, we are
now in an age of discontinuity and extrapolating from the past is hopelessly
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ineffective. We cannot assume that trends that exist today will continue into
the future. He identifies four sources of discontinuity:
new technologies, globalization, cultural pluralism, andknowledge capital.
In 1970, Alvin Toffler in Future Shock described a trend towards
accelerating rates of change. He illustrated how social and technological
norms had shorter lifespans with each generation, and he questioned
society's ability to cope with the resulting turmoil and anxiety. In past
generations periods of change were always punctuated with times of
stability. This allowed society to assimilate the change and deal with it
before the next change arrived. But these periods of stability are getting
shorter and by the late 20th century had all but disappeared. In 1980 in The
Third Wave, Toffler characterized this shift to relentless change as the
defining feature of the third phase of civilization (the first two phases being
the agricultural and industrial waves).He claimed that the dawn of this new
phase will cause great anxiety for those that grew up in the previous phases,
and will cause much conflict and opportunity in the business world.
Hundreds of authors, particularly since the early 1990s, have attempted to
explain what this means for business strategy.
In 2000, Gary Hamel discussed strategic decay, the notion that the value of
all strategies, no matter how brilliant, decays over time.
In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and
stressed the importance of the timing (both entrance and exit) of any given
strategy. This has led some strategic planners to build planned
obsolescence into their strategies.
In 1989, Charles Handy identified two types of change.Strategic drift is a
gradual change that occurs so subtly that it is not noticed until it is too late.
By contrast, transformational change is sudden and radical. It is typically
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caused by discontinuities (or exogenous shocks) in the business

environment. The point where a new trend is initiated is called a strategic
inflection point by Andy Grove. Inflection points can be subtle or radical.
In 2000, Malcolm Gladwell discussed the importance of the tipping point,
that point where a trend or fad acquires critical mass and takes off.[48]
In 1983, Noel Tichy wrote that because we are all beings of habit we tend to
repeat what we are comfortable with.He wrote that this is a trap that
constrains our creativity, prevents us from exploring new ideas, and hampers
our dealing with the full complexity of new issues. He developed a
systematic method of dealing with change that involved looking at any new
issue from three angles: technical and production, political and resource
allocation, and corporate culture.
In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change
requires that businesses continuously reinvent themselves. His famous
maxim is “Nothing fails like success” by which he means that what was a
strength yesterday becomes the root of weakness today, We tend to depend
on what worked yesterday and refuse to let go of what worked so well for us
in the past. Prevailing strategies become self-confirming. To avoid this trap,
businesses must stimulate a spirit of inquiry and healthy debate. They must
encourage a creative process of self renewal based on constructive conflict.
Peters and Austin (1985) stressed the importance of nurturing champions
and heroes. They said we have a tendency to dismiss new ideas, so to
overcome this, we should support those few people in the organization that
have the courage to put their career and reputation on the line for an
unproven idea.
In 1996, Adrian Slywotzky showed how changes in the business
environment are reflected in value migrations between industries, between
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companies, and within companies. He claimed that recognizing the patterns

behind these value migrations is necessary if we wish to understand the
world of chaotic change. In “Profit Patterns” (1999) he described businesses
as being in a state of strategic anticipation as they try to spot emerging
patterns. Slywotsky and his team identified 30 patterns that have
transformed industry after industry.
In 1997, Clayton Christensen (1997) took the position that great companies
can fail precisely because they do everything right since the capabilities of
the organization also defines its disabilities. Christensen's thesis is that
outstanding companies lose their market leadership when confronted
with disruptive technology. He called the approach to discovering the
emerging markets for disruptive technologies agnostic marketing, i.e.,
marketing under the implicit assumption that no one - not the company, not
the customers - can know how or in what quantities a disruptive product can
or will be used before they have experience using it.
A number of strategists use scenario planning techniques to deal with
change. The way Peter Schwartz put it in 1991 is that strategic outcomes
cannot be known in advance so the sources of competitive advantage cannot
be predetermined. The fast changing business environment is too uncertain
for us to find sustainable value in formulas of excellence or competitive
advantage. Instead, scenario planning is a technique in which multiple
outcomes can be developed, their implications assessed, and their likeliness
of occurrence evaluated. According to Pierre Wack, scenario planning is
about insight, complexity, and subtlety, not about formal analysis and
numbers.
In 1988, Henry Mintzberg looked at the changing world around him and
decided it was time to reexamine how strategic management was done.He
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examined the strategic process and concluded it was much more fluid and
unpredictable than people had thought. Because of this, he could not point to
one process that could be called strategic planning. Instead Mintzberg
concludes that there are five types of strategies:
 Strategy as plan - a direction, guide, course of action - intention rather than
actual
 Strategy as ploy - a maneuver intended to outwit a competitor
 Strategy as pattern - a consistent pattern of past behaviour - realized rather
than intended
 Strategy as position - locating of brands, products, or companies within the
conceptual framework of consumers or other stakeholders - strategy
determined primarily by factors outside the firm
 Strategy as perspective - strategy determined primarily by a master
strategist
In 1998, Mintzberg developed these five types of management strategy into
10 “schools of thought”. These 10 schools are grouped into three categories.
The first group is prescriptive or normative. It consists of the informal
design and conception school, the formal planning school, and the analytical
positioning school. The second group, consisting of six schools, is more
concerned with how strategic management is actually done, rather than
prescribing optimal plans or positions. The six schools are the
entrepreneurial, visionary, or great leader school, the cognitive or mental
process school, the learning, adaptive, or emergent process school, the
power or negotiation school, the corporate culture or collective process
school, and the business environment or reactive school. The third and final
group consists of one school, the configuration or transformation school, an
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hybrid of the other schools organized into stages, organizational life cycles,
or “episodes”.
In 1999, Constantinos Markides also wanted to reexamine the nature of
strategic planning itself.He describes strategy formation and implementation
as an on-going, never-ending, integrated process requiring continuous
reassessment and reformation. Strategic management is planned and
emergent, dynamic, and interactive. J. Moncrieff (1999) also
stresses strategy dynamics. He recognized that strategy is partially deliberate
and partially unplanned. The unplanned element comes from two
sources: emergent strategies (result from the emergence of opportunities
and threats in the environment) and Strategies in action (ad hoc actions by
many people from all parts of the organization).
Some business planners are starting to use a complexity theory approach to
strategy. Complexity can be thought of as chaos with a dash of order. Chaos
theory deals with turbulent systems that rapidly become disordered.
Complexity is not quite so unpredictable. It involves multiple agents
interacting in such a way that a glimpse of structure may appear.

The psychology of strategic management

Several psychologists have conducted studies to determine the psychological
patterns involved in strategic management. Typically senior managers have
been asked how they go about making strategic decisions. A 1938 treatise
by Chester Barnard, that was based on his own experience as a business
executive, sees the process as informal, intuitive, non-routinized, and
involving primarily oral, 2-way communications. Bernard says “The process
is the sensing of the organization as a whole and the total situation relevant
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to it. It transcends the capacity of merely intellectual methods, and the

techniques of discriminating the factors of the situation. The terms pertinent
to it are “feeling”, “judgement”, “sense”, “proportion”, “balance”,
“appropriateness”. It is a matter of art rather than science.”
In 1973, Henry Mintzberg found that senior managers typically deal with
unpredictable situations so they strategize in ad hoc, flexible, dynamic, and
implicit ways. . He says, “The job breeds adaptive information-manipulators
who prefer the live concrete situation. The manager works in an
environment of stimulous-response, and he develops in his work a clear
preference for live action.”
In 1982, John Kotter studied the daily activities of 15 executives and
concluded that they spent most of their time developing and working a
network of relationships that provided general insights and specific details
for strategic decisions. They tended to use “mental road maps” rather than
systematic planning techniques.
Daniel Isenberg's 1984 study of senior managers found that their decisions
were highly intuitive. Executives often sensed what they were going to do
before they could explain why. He claimed in 1986 that one of the reasons
for this is the complexity of strategic decisions and the resultant information
uncertainty.
Shoshana Zuboff (1988) claims that information technology is widening the
divide between senior managers (who typically make strategic decisions)
and operational level managers (who typically make routine decisions). She
claims that prior to the widespread use of computer systems, managers, even
at the most senior level, engaged in both strategic decisions and routine
administration, but as computers facilitated (She called it “deskilled”)
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routine processes, these activities were moved further down the hierarchy,
leaving senior management free for strategic decision making.

Limitations of strategic management

Although a sense of direction is important, it can also stifle creativity,
especially if it is rigidly enforced. In an uncertain and ambiguous world,
fluidity can be more important than a finely tuned strategic compass. When a
strategy becomes internalized into a corporate culture, it can lead to group
think. It can also cause an organization to define itself too narrowly. An
example of this is marketing myopia.
Many theories of strategic management tend to undergo only brief periods of
popularity. A summary of these theories thus inevitably exhibits
survivorship bias (itself an area of research in strategic management). Many
theories tend either to be too narrow in focus to build a complete corporate
strategy on, or too general and abstract to be applicable to specific situations.
Populism or faddishness can have an impact on a particular theory's life
cycle and may see application in inappropriate circumstances. See business
philosophies and popular management theories for a more critical view of
management theories.
In 2000, Gary Hamel coined the term strategic convergence to explain the
limited scope of the strategies being used by rivals in greatly differing
circumstances. He lamented that strategies converge more than they should,
because the more successful ones are imitated by firms that do not
understand that the strategic process involves designing a custom strategy
for the specifics of each situation.
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Bibliography:

 www.wikipedia.org

 www.indiaknowhow.com

 Classroom Notes

 Business Policy and Strategic Management by Aurnob Roy.

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