CHAPTER-2 BUSINESS POLICY & STRATEGIC MANAGEMENT

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1 CHAPTER-2 BUSINESS POLICY & STRATEGIC MANAGEMENT Business Policy is the study of Functions & responsibilities of senior management Crucial problems affecting success of whole enterprise Decisions that determine direction of org. & shape its future Management- Key group in an org. in-charge of its affairs, entrusted with task of bringing together & integrating the disorganised resources into a functioning whole Has to facilitate organisational change & adaptation Basic functions include Designing of org. Determination of goals & activities Mobilisation & acquisition of resources Allocation of tasks & resources among personnel & activity units Adoption of certain techniques, tools & methods for carrying on activities Installation of communication & control activities to ensure that what is planned is achieved Strategy - It is- Consciously considered & flexibly designed scheme of corporate intent & action To achieve effectiveness To mobilise resources To direct effort & behaviour To handle events & problems To perceive & utilise opportunities To meet challenges & threats To corporate survival & success It is no substitute for sound, alert & responsible management allowances are made for possible miscalculations & unanticipated events (flexibility is present) blend of Proactive actions on part of managers to improve company s market position & financial performance Reactive actions as needed to unanticipated developments & fresh market conditions Proactive strategy is the product (result) of management s analysis & strategic thinking about company s situations & its conclusions about how to position the company in the marketplace & tackle the task of competing buyer patronage (customer loyalty) When market & competitive conditions take an unexpected turn or any part of company s strategy hits a stone wall, some kind of strategic reaction (or adjustment) is required, which is called as Reactive Strategy. Crafting a strategy involves stitching together a proactive (intended) strategy & reactive (adaptive) strategy.

2 Corporate Strategy- Definition- It is concerned with the choice of businesses, products & markets so as to achieve right fit between the firms & its envt., in order to build relevant competitive advantage for the firm. Its characteristics include following (CORPORATE)- Meant to cope with competitive & complex settings Concerned with perceiving opportunities & threats to cope up with them Flexible & dynamic (not rigid) Long-range in nature, though valid for short-range also (period) Flows out of goals & objectives of enterprise to translate them into realities Concerned with deployment of limited organisational resources in the best possible manner Action-oriented (more specific than objectives) Formulated by top management level (though middle/lower level managers also associated in designing & formulation) Dynamics of Competitive Strategy- Company Caff strength & weakness Opportunities (New) & Threats (shut down) Factors Internal to Company COMPETITIVE STRATEGY Factors External to Company Personal Values of Key Implementers Societal Expectations FIG: Context in which Competitive Strategy is formulated STRATEGIC MANAGEMENT- Defined as managerial process of forming a strategic vision, setting objectives, crafting strategy, implementing & executing the strategy, & then over times initiating corrective adjustments in vision, objectives, strategy & execution are deemed appropriate. In a hyper competitive marketplace, cos. Can operate successfully by creating & delivering superior value to target customers by learning how to adapt to a continuously changing envt

3 for this, co. need to be farsighted & visionary & develop long term strategies Its component Strategic Planning ; involves developing strategy to meet competition & ensure long term survival & growth Objectives- Create competitive advantage Guide co. successfully through all envtl. Changes (external changes or those introduced to firms by managers) It starts with developing co. mission, objectives & goals, business portfolio & functional plans. Mission- to give co. direction Objectives/goals- to give co. means & methods to accomplish mission Business portfolio- to allow management to use all facets of org. Functional plans- to carry daily operations from different functions. No matter how well strategic processes have been designed & implemented, success depends on performance (execution) & co-ordination How well each department performs its customer-value-adding activities How well departments work together to serve customers FRAMEWORK OF STRATEGIC MANAGEMENT- 1. Where are we now? 5. How can we ensure arrival? 2. Where we want to be? 4. Which way is best? 3. How might we get there? 1. Beginning: Do a situational analysis of firm in context of envt. to find its relative market position, corporate image, strength & weaknesses & envtl. threats & opportunities (SWOT) 2. Ends: set goal for org. after finalising its vision & mission Vision- Refer topic Strategic Vision Mission- what customers it serves, need it satisfies, type of product it offers. 3. Means: deals with various strategic alternatives it has 4. Evaluation: Out of all alternatives, select best alternative in line with its SWOT analysis

4 5. Control: implementation & control stage of selected strategy. Continuously do situational analysis & repeats the stages(or process) again. IMPORTANCE OF STRATEGIC MANAGEMENT- Businesses follows war principle of win or lose, & not necessarily win-win. Hence, build competitive advantage over others to win by following process of strategic management.its merits are- (MERITS) Serves as corporate defence mechanism against mistakes & pitfalls. Also helps in avoiding costly mistakes in investments/ product or market choice. Helps org. evolve certain core competencies & competitive advantage, to fight for survival & growth. (kicks off rivals) Helps org. to identify opportunities + ways & means to reach them, hence, concerned with ensuring good future for the firm Provides better guidance (teaches) to entire org by providing framework for all major business decisions such as those of products, markets, investments, etc. Helps org to be more proactive instead of reactive (strategy) so as to enable them to analyse & take actions instead of being mere spectators DIMENSIONS OF STRATEGIC DECISIONS- Using porate part of CORPORATE mnemonic, these can be state as follows- Its results are seen on a long term basis & not immediately, hence affects long term prosperity (period) Involves predicting future envtl. conditions & how to orient for the changed conditions (orients future) May require huge financial investment to venture new area of business; or huge manpower with new skills in them (involves allocation of large amount of co. resources) Involves org in totality, affecting different sections of org with varying degree (actions have major multifunctional or multi-business consequences) Require top management decisions as it involve thinking in totality of org with lot of risk involved STRATEGIC MANAGEMENT MODEL- (It is dynamic & continuous process) Perform external audit Develop vision & mission statement Establish long-term objectives Generate, analyse & select strategy Implement strategies management issues Implement strategies marketing. Finance, a/c, R&D issues Measure & Evaluate performance Perform Internal audit

5 STRATEGIC VISION- Definition- Roadmap of a company s future, pointing it in a particular direction, & charts a strategic path for it Provides specifics about- Technology & customer focus Geographic & product markets to be pursued Capabilities it plans to develop Kind of company that management is trying to create Communicates management s aspirations to stakeholders & helps steer efforts of org. personnel in one direction Elements- Create a mission statement Use it as basis, to decide on long-term course making choices about Where are we going? Communicate strategic vision clearly & excitingly to arouse org. wide commitment How to develop it? Challenge is to think creatively about how to prepare a company for future. It is an exercise of intelligent entrepreneurship May need to change direction, not to survive ; but to maintain the success. Well-articulated vision creates enthusiasm & engages members of the org. Best worded vision statement clearly & crisply illuminates the direction in which org. is head STRATEGIC MISSION- Definition- Typically, focussed on its present business scope Who we are & what we do Broadly describes the present conditions of an org. Its capabilities Customer focus Activities Business make-up Explanation- It is an expression of growth ambition of the firm. It is, in fact, the firm s future visualised. It provides a dramatic picture of what the co. wants to become It is the corporation s dream crystallised. It answers the question What business are we in? It should be precise, clear, feasible, distinctive, motivating & highly personalised (unique for org.) Importance- To ensure unanimity of purpose within the org Provide a basis for allocating + motivating use of organisational resources Establishes general tone for organisational climate.

6 OBJECTIVES & GOALS- Objectives- Objectives are org s performance targets the results & outcomes it wants to achieve Flow from mission & growth ambition of org. Function as yardstick for tracking organisational performance & progress These are open ended attributes that denotes future states or outcomes Goals- These are closed-ended attributes, which are precise & expressed in specific terms Thus, goals are more specific & translate the objectives to short term perspectives. STRATEGIC LEVELS IN ORGANISATIONS- Corporate Level- Occupy the apex of decision making within the org. CEO is the principal general manager Roles include to oversee the development of strategies for the whole org defining the mission & goals determining what business it should be in allocate resources formulate & implement strategies provide leadership Business Level- provides link b/w people who oversee the strategic development of firm & those who own it (SH) are concerned with strategies that are specific to a particular business Role includes Translate general statements of direction & intent that come from corporate level into concrete strategies for individual businesses. Functional Level- Responsible for specific business functions or operations Roles include (great responsibility & strategic role) Develop functional strategies in their area that help fulfil the strategic objectives set by corporate & business level managers Strategy implementation: execution of corporate & business level plans Importance + Role They are closer to the customer than any other typical general manager Provide most of the information that makes it possible for business & corporate level managers to form realistic & attainable strategies May themselves generate important ideas that subsequently may become major strategies for the org