Introduction to Business Policy

Business Policy and Strategy Chapter 1: Introduction to Business Policy Chapter Contents:    

Definition of Business Policy Purpose of Study Business Policy Objectives of Business Policy Importance of Business Policy

Business Policy Business policy is the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organization and shape its future. This comprehensive definition covers many aspects of business policy. 1. It is considered as the study of the functions and responsibilities of the senior management related to those organizational problems which affect the success of the total enterprise. 2. It deals with the determination of the future courses of actions that an organization has to adopt. 3. It involves a choosing the purpose and defining what needs to be done in order to mould the character and identify of an organizations. 4. It is concerned with the mobilization of resources, which will have the organization to achieve its goals. The senior management consists of those managers who are primarily responsible for long term decisions. These are persons who are not concern with day to day problems but are expected to devote their time and energy to thinking and deciding about the future courses of action. With its concern for the determination of the future courses of action, business policy lay down a long term plan which the organization then follows. While determining the future courses of action, the senior management has a mental picture of the type of organization they want their company to become. While deciding about future courses of actio9n, the senior management are confronted with a wide array of decisions and actions that could possibly be taken. The organizational decisions are not made in isolation and managerial actions can be taken without providing the resource necessary for them. While deciding about the future courses of actions the senior management concern themselves with the financial, material, and human resources that would be required for the implementation of the long term plans.

The Purpose of Business Policy The purpose of business policy is three fold: a. To integrate the knowledge gain in various functional areas of management b. To adopt a generalist approach to problem solving and c. To understand the complex interlinkages within an organization through the use of a system approach to decision making and relating this to the changes taken place in the external environment. The Objectives of Business Policy The objectives of business policy are as follows – 1. Integration of functionally specific knowledge. Business policy acts as an integrated, capstone course demonstrating the interdependencies between separate functional areas, such as market finance and so on. 2. Understanding the ‘Big Picture’. Communicating the appreciation of the synergy created by managing interdependencies among the functional areas is a critical objective of business policy. 3. Working in, managing, and leading a team. Working with and managing a diverse and flexible team is a critical priority with the corporate recruiters. Business policy tries to build up the team work spirit by illustrating the finer aspects group dynamics and by bringing together students from different specialization areas. 4. Enhancement of comprehension and communication skills. Business policy lays great emphasize on allowing students to be active participants in the learning process. In contrast to the functional courses, there is a stress on using methodologies, such as case discussion, and oral and written presentations and reports. 5. Ability to assess the applicability and relevance of strategic management research.

The Importance of Business Policy The business policy is important as a course in the management curriculum and as a component of executives development programs middle level managers who are preparing to the move-up to the senior management level. 1. For learning the course. Business policy seeks to integrate the knowledge and experience gain in various functional areas of management. It enables the learners to understand and make sense of the complex interaction that takes place different functional areas. - Business policy deals with the constraints and complexities of real-life business. - Business policy makes the study and practice of management more meaningful as one can view business decision-making in its proper perspective.

2. For Understanding the Business Environment. Regardless of the level of management a person belongs to, business policy helps to create an understanding of how policies are formulated. - By gaining an understanding of the business environment, managers become more receive to the ideas and suggestions of the senior management. - When they become capable of relating environmental changes to policy changes within an organization managers feel themselves to be a part of a greater design. 3. For Understanding the Organization. Business policy presents a basic framework for understanding strategic decision making while a person is at the middle level of management. - Business policy, like most other areas of management, brings the benefit of years of distilled experience in strategic decision-making to the organization and also to its managers. - An understanding of business policy many also lead to an improvement in job performance. 4. For Personal Development. A study of business policy offers considerable scope for personal development. It is a fact of organization life that the different subunits within an organization have a varying value and importance at different times.

Business Policy & Strategy Chapter 2: Functional Plans & Policies

Chapter Contents: 1. 2. 3. 4. 5. 6.

Nature of Functional Plan and Policies Need for Functional Plan & Policies Financial Plans and Policies Marketing Plans and Policies Operations Plans and Policies Personnel Plans and Policies

Nature of Functional Plan and Policies Functional strategies operate on a level below the business strategies. There might be several sub functional areas within functional strategies. For instance, the functional area of marketing may have sub functions, such as, product development, advertising, sales promotion, market research, and so on. Functional plan and policies are the plan or tactics to implement business strategies, are made within the guidelines which have been set at higher level. Plans are formulated to select a course of action, while policies are required to act as guidelines to those actions. Functional plans and policies, are therefore, in the nature of the tactics which make a strategy work. Functional managers need guidance from the corporate and business strategies in order to make decisions. In simple term, functional plans tell the functional mangers what has to be done, while functional policies state how the plans are to be implemented. Need for Functional Plans and Policies Glueck has suggested five reasons to show why functional plans and policies are needed. Functional plans and policies are developed to ensure: 1. The strategic decisions are implemented by all the parts of an organization. 2. There is a basis available for controlling activities in the different functional areas of a business. 3. The time spent by functional managers on decision-making may be reduced as the plans lay down clearly what has to be done and the policies provide the discretionally framework within which decisions need to be taken. 4. Similar situations occurring in different functional areas are handled by the functional managers in a consistent manner. 5. Coordination across the different functions takes place where necessary.

Financial Plans and Policies The financial plans and policies of an organization are related to the availability, usage, and management of funds. Strategists need to formulate plans and policies in these areas so that strategies may be implemented effectively. Sources of Funds: Plans and policies related to the sources of funds deals with financing or capital-mix decisions plans and policies have to made for the following major factors: a. Capital structure b. Procurement of Capital and Working Capital Borrowings c. Reserves and surplus as sources of funds d. The relationship with lenders, banks, and financial institutions. Usage of Funds: Plans and policies for the usage of funds deal with investment or asset-mix decisions. The important factors that are related here are : a. Capital Investment b. Fixed Asset Acquisition c. Current Assets d. Loans & Advances e. Dividend Decision f. Relationship with Shareholders Management of Funds: The management of funds is an important area of financial plans and policies. It basically deals with decisions related to the systemic aspects of financial management. The major factors for which plans and policies related to the management of funds have to be made are: a. The systems of finance, accounting, and budgeting b. Management Control system c. Cash, Credit, & Risk Management

d. Cost control and reduction e. Tax Planning and Tax Advantages Marketing Plans and Policies Plans and policies related to the marketing have to be formulated and implemented on the basis of the 4P’s of the marketing mix, that is, product, pricing, place, and promotion. The major issues related to these marketing mix factors. Questions such as: ‘What types of product to offer? At what price? Through which distribution channel? And by the use of which promotional tools?’ have to be answered. Product: Product denote the goods and services that an organization offers to its target markets. Plans and policies related to products and markets need to be formulated and implemented on the basis of characteristics, such as, quality, features, choice of models, brands names, packaging, and so on. Strategies dictate the manner in which product and market characteristics would be defined. Thus, competitive strategies may be implemented by stressing on high quality, and better and more features. Pricing: Price denotes the money that customers pay in exchange of goods and services. It is important to the seller because it represents the returns of its efforts. To a buyer, price is the value that is assigned to the satisfaction of its needs and wants. Several price characteristics, such as, discount, mode of payment, allowances, payment period, credit terms, and so on, affect pricing plans and policies. Place: Place is the process of by which goods or services are made available to the customers. Distribution plans and policies address themselves to issues, such as, the channels to be used, transportation, logistics and storage, inventory management, coverage of markets, and so on. Promotion: Promotion deals with the marketing communication to convey the company’s, and its product’s or service’s image to prospective buyers. A promotional mix consist of four activities: Advertising, personal selling, sales promotion, and publicity.

Operations Plans and Policies The plans and policies for operations are related to the production system, operational planning and control, and R&D. Production System: The production system is concerned with the capacity, location, layout, product or service design, work systems, degree of automation, extent of vertical integration, and other such factors. Plans and policies related to the production system are significant as they deal with vital issues affecting the capability of the organization to achieve its objectives. Operations Planning and Control: Plans and policies related to operations planning and control are concerned with aggregate production planning, materials supply, inventory, cost, and quality management, and maintenance of plant and equipment. Research and Development: Plans and policies for R&D deal with product development, personnel and facilities, level of technology used, technology transfer and absorption, technological collaboration and sup[port, and so on.

Personnel Plans and Policies Personnel plans and policies relate to the personnel system, organizational and employee characteristics, and industrial relations. Personnel: Plans and policies related to the personnel system deal with factors like manpower planning, selection, development, compensation, communication, and appraisal. The importance of such plans and policies lies in the role that personnel systems play in providing and maintaining human resources. Organizational and Employee Characteristics: Organizational and employee characteristics include factors, such as, the corporate image, quality of manger, staff and workers, perception about and the image of the organization as an employer, availability of development opportunities, for employees, working conditions, and so on. Industrial Relations: Plans and policies related to industrial relations deal with issues such as union-management relationship, collective bargaining, safety, welfare and security, employee satisfaction, and morale, and so on.

Business Policy & Strategy Chapter 3: The Strategic Management Process & Establishing Company Direction Chapter Contents:  Strategy & Strategic Management  Five Basic Tasks of Strategic Management  Developing a Strategic Vision  Setting Objectives  Crafting a Strategy  Implementing & Executing the Strategy  Evaluating Performance, Monitoring New Developments, and Initiating Corrective Adjustments Strategy: A company’s Strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organizational objectives. Strategic Management: The term strategic management refers to the managerial process of forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then over time initiating the strategy, and then over time initiating whatever corrective adjustments in the vision, objectives, strategy, and execution are deemed appropriate. The five Tasks of Strategic Management: The strategy-making/ Strategy-implementing process consists of five interrelated managerial tasks: 1. 2. 3. 4. 5.

Forming a strategic vision of where the organization is headed. Setting objectives. Crafting a strategy to achieve the desired outcomes. Implementing and executing the chosen strategy efficiently and effectively. Evaluating performance and initiating corrective adjustments.

Developing a Strategic Vision: A strategic vision is a roadmap of a company’s future – providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create. Mission Statement: A company’s mission statement is typically focused on its present business scope – who we are and what we do; mission statements broadly describe an organization’s present capabilities, customer focus, activities, and business makeup.

The Three Elements of a Strategic Vision Managers have three discernible tasks in forming a strategic vision and making it a useful directionsetting tool:  Coming up with a mission statement that defines what business the company is presently in and conveys the essence of “who we are, what we do, and where we are now.”  Using the mission statement as a basis for deciding on a long-term course, making choices about “where we are going,” and charting a strategic path for the company to pursue.  Communicating the strategic vision in clear, exciting terms that arouse organization wide commitment. The Mission Statement: A Starting Point for Forming a Strategic Vision: One of the roles of a mission statement is to give the organization its own special identity, business emphasis, and path for development – one that typically sets it apart from other similarly situated companies. A strategically revealing mission statement incorporates three elements:  Customer needs, or what is being satisfied  Customer groups, or who is being satisfied  The company’s activities, technologies, and competencies, or how the enterprise goes about creating and delivering value to customers and satisfying their needs. Mission Statements for Functional Departments There’s also a place for mission statements for key functions and departments within a business – R&D, marketing, finance, human resources, customer service, information systems. Every department can help focus the efforts of its personnel by developing a mission statement that sets forth its principal role and activities, the direction it is headed, and its contribution to the overall company mission. Functional and departmental managers who think through and debate with subordinates and higher-ups what unit needs to focus on and do have a clearer view of how to lead the unit. Three examples from actual companies indicate how a functional mission statement puts the spotlight on a unit’s organizational role and scope:  The mission of the human resources department is to contribute to organizational success by developing effective leaders, creating high-performance teams, and maximizing the potential of individuals.  The mission of the corporate claims department is to minimize the overall cost of liability, workers compensation, and property damage claims through competitive cost containment techniques and loss prevention and control programs.  The mission of corporate security is to provide services for the protection of corporate personnel and assets through preventive measures and investigations.

From the Mission Statement to Strategic Vision A mission statement highlighting the boundaries of the company’s current business is a logical vantage point from which to look down the road, decide what the enterprise’s business makeup and customer focus need to be, and chart a strategic path for the company to take. As a rule, strategic visions should have a time horizon of five years or more unless the industry is very new or market conditions are so volatile and uncertain that it is difficult to see that far down the road with any degree of confidence. The entrepreneurial challenge in developing a strategic vision is to think creatively about how to prepare a company for the future. Forming a strategic vision is an exercise in astute entrepreneurship, not time for pipedreams or fantasies about the company’s future. Many successful organizations need to change direction not in order to survive but in order to maintain their success. Communicating the Strategic Vision Strategic visions ought to convey a larger sense of purpose – so that employees see themselves as ‘Building a cathedral’ rather than ‘laying stones’. A well articulate strategic vision creates enthusiasm for the course management has charted and engages numbers of the organizations. The worded vision statements clearly and crisply illuminate the direction in which an organization is headed. Setting Objectives Objectives represent a managerial commitment to achieving specific performance targets within a specific time frame – they are a call for results that connect directly to the company’s strategic vision and core values. Strategic objectives need to be competitor – focused, often aiming at unseating a competitor considered to be the industry’s best in a particular category. A company exhibit Strategic Intent when it t pursues and ambitious strategic objective and concentrates its competitive actions and energy’s on achieving that objectives. Crafting Strategy A company’s strategy consist of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieve organizational objectives. Objectives are the ends and strategy is the means of achieving them. The how’s of a company’s strategy are typically a blend of (i) deliberate and purposeful actions (ii) as needed reactions to unanticipated development and fresh market conditions and competitive pressures and (iii) the collective learning of the organization over time – not just insights gained from its experiences but, more important, the internal activities it has learned to perform quite well and the competitive capabilities it has developed. The strategy making task thus involves developing and intended strategy; adapting it as events unfold (adaptive/reactive strategy); and linking the firm business approaches, actions, and competitive

initiatives closely to its competencies and capabilities. In short a company’s actual strategy is something managers shape and reshape as events transpire outside the company and as the company’s competitive assets and liabilities evolve in ways that enhance or diminish its competitiveness. Strategy making is not just a task for senior executives. In large enterprises decisions about what business approaches to take and what new moves to initiate involve senior executives in the corporate office, heads of business units and product division, the heads of major functional areas within a business or division, plant managers, product managers, district and regional sales managers, and lower level supervisors. In diversified enterprises, strategies are initiated at four distinct organizations levels. There’s a strategy for the company and all of its business as a whole (Corporate Strategy). There’s a strategy for each separate business the company has diversified into (business strategy). There’s a strategy for each specific functional unit within a business (functional Strategy). Finally, there are still narrower strategies for basic operating units – plants, sales districts, and region, and departments within functional areas (operating strategy). In single business enterprises there are only three levels of strategy making (Business, Functional, & Operating Strategy) unless diversification into other business become an active consideration.

Corporate Strategy

Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

In diversified enterprises, strategies are initiated at four distinct organizational levels. 1. Corporate Strategy: Corporate strategy is the overall managerial game plan for a diversified company; it extends companywide – an umbrella over all a diversified company’s business. Corporate strategy consist of the moves made to establish business positions in different industries and the approaches used to manage the company’s group of business. Crafting a corporate level strategy for a diversified company’s involves four kinds of initiatives: i. ii. iii. iv.

Making the moves to establish positions in different business and achieve diversification. Initiating actions to boost the combined performance of the business the firm has diversified into. Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantage. Establishing investment priorities and steering corporate resources into the most attractive business units.

2. Business Strategy: The term business strategy or business level strategy refers to the managerial game plan for a single business. It is mirrored in the pattern of approaches and moves crafted by management to produce successful performance in one specific line of business. The central thrust of business strategy in how to build and strengthen the company’s long-term competitive position in the market place. Toward this end, business strategy concerned principally with – i. ii. iii. iv. v.

forming responses to changes under way in the industry, the company at large, the regulatory and potential arena, and other relevant areas; crafting competitive moves and market approaches that can lead to sustainable competitive advantage; building competitively valuable competencies and capabilities; uniting the strategic initiatives of functional departments; and addressing specific strategic issues facing the company’s business.

3. Functional Strategy: the term functional strategy refers to the managerial game plan for a particular functional activity, business process, or key department within a business. A company’s marketing strategy, for example, represents the managerial game plan for running the marketing part of the business.

4. Operating Strategy: Operating Strategy concerns the even narrower strategic initiatives and approaches for managing key operating units (plants, sales districts, distribution centers) and for handling daily operating tasks with strategic significance. Implementing and Executing The Strategy The managerial task of implementing and executing the chosen strategy entails assessing what it will take to develop the needed organizational capabilities and to reach the targeted objectives on schedule. The managerial skill here is figuring out what must be done to put the strategy in place, carry it out proficiently, and produce good results. Managing the strategy execution process is primarily a hands-on, close-to-the-scene administrative task that includes the following principal aspects: 1. Building an organization capable of carrying out the strategy successfully. 2. Allocating company resources so that organizational units charged with performing strategycritical activities and implementing new strategic initiatives have sufficient people and funds to do their work successfully. 3. Establishing strategy-supportive policies and operating procedures. 4. Putting a freshly chosen strategy in place. 5. Motivating people in ways that induce them to pursue the target objectives energetically and, if need be, modifying their duties and job behavior to better fit the strategy requirements of successful execution. 6. Tying the reward structure to the achievement of targeted results. 7. Creating a company culture and work climate conducive to successful strategy implementation and execution. 8. Instituting best practices and programs for continuous improvement. 9. Installing information, communication, and operating systems that enable company personnel to carry out their strategic roles effectively day in, day out. 10. Exerting the internal leadership needed to drive implementation forward and to keep improving on how the strategy is being executed. Evaluating Performance, Monitoring New Developments, and Initiating Corrective Adjustments It is always incumbent on management to evaluate the organization’s performance and progress. It is management’s duty to stay on top of the company’s situation, deciding whether things are going well internally, and monitoring outside developments closely. Subpar performance or too little progress, as well as important new external circumstances, will require corrective actions and adjustments in a company’s long-term direction, objectives, business model, and/or strategy.

Test of Winning Strategy Three tests can be used to evaluate the merits of one strategy over another: 1. The Goodness of Fit Test: A good strategy has to be well matched to industry and competitive conditions, market opportunities and threats, and other aspects of the enterprise’s external environment.

2. The Competitive Advantage Test: A good strategy leads to sustainable competitive advantage. The bigger the competitive edges that a strategy helps build the more powerful and effective it is. 3. The Performance Test: A good strategy boosts company performance. Two kinds of performance improvements are the most telling of a strategy’s caliber: gains in profitability and gains in the company’s competitive strength and long-term market position.