BCOM 423: STRATEGIC MANAGEMENT

Introduction

Strategy
Is a military term "strategos” which is a Greek word for "general”, who is the strategist, who
plans the whole campaign while the other ranks of the army are the people who operationally
make sure troop and equipments are in the right place at the right time to fight the enemy.
Johnson, Scholes &Whittington (2005), “Strategy is the direction and scope of an organization
over the long term, which achieves advantage in a changing environment through its
configuration of resources and competences with the aim of fulfilling stakeholder expectations”.
Mintzberg (1998), Introduced the 5Ps of strategy. He stated strategy as a:
– Plan
– Ploy
– Pattern
– Position and
– Perspective

Strategy as a Plan

• Strategy specifies a consciously intended course of action

• Is designed in advance of the actions it governs
• Is developed deliberately/purposefully
• May be general or specific

Strategy as a Ploy

• Is a specific maneouver intended to outwit a competitor e.g. expansion

• The idea is to outsmart and shed off competitor threat

Strategy as a pattern

• Strategy is a pattern that emerges from a stream of actions

• Is developed in the absence of intentions and without pre-conception
• Is visualized only after the events it governs (emergent)

Strategy as a position

• Is a means of locating an organization in the environment

• Indicates how an organization will develop a sustainable competitive advantage

Strategy as a perspective

• Strategy gives an organization an identity and a perspective

• Reveals the way an organization perceives the outside world
• May be an abstraction which only exists in the mind of some interested party e.g. CEO
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Johnson, Scholes &Whittington (2005), “Strategy is the direction and scope of an organization
over the long term, which achieves advantage in a changing environment through its
configuration of resources and competences with the aim of fulfilling stakeholder expectations”.

Introduction to Business Policy

The organization sets the objectives and works towards their achievement. Once these objectives
are defined and strategies determined, certain policies have to be made to put them into action.
Business policies act as a guide to action. They provide the frame work within which an
organization has to meet its business objectives. The policy points out the direction in which the
company ought to go.
Policies aid in decision making and are the basis for procedures. They are responsibilities of top
management. Policies are applied in long range planning and are directly related to goals. They
are concerned with estimating availability of resources, their procurement their augmentation and
their efficient utilization.

Nature, Scope and Significance of Business Policy

Business policy is the guide post to decision making. It helps in the managerial thinking process
and thus leads to the efficient and effective attainment of the objectives of any organization.
Business policy has been defined as "Management's expressed or implied intent to govern action
in the pursuit of the company's objectives." Business policy clarifies the intention of
management in dealing with the various problems faced. It gives the managers a transparent
guideline to take their decisions by being on the safe side. Business policy helps the manager in
identification of the solutions to the problem. It provides the framework in which he has to take
the decisions. Following are the different viewpoints of leading authorities as to what is business
policy?

1. The first category holds the opinion that policy and strategy are synonymous. Business policy
has been defined by William Glueck as "Management policy is long range planning. For all
practical purposes, management policy, long range planning and strategic managernent mean the
same thing." However, this view is quite controversial as strategy and Business policy do not
mean the same thing. Strategy includes awareness of the mission, purpose and objectives. It has
been defined as, "the determination of basic long term goals and objectives of all enterprise, and
the allocation of resources necessary to carry out these goals", while policies are statements or a
commonly accepted understandings of decision making and are thought oriented guidelines.
Therefore, strategy and Business policy cannot be used interchangeably as there is a clear line of
differentiation between the two terms. This view stress upon the assumption that business
strategy and policy are more or less the same. However, this view did not receive much support
from various authorities in the area of business management.

2. The second group of experts views Business policy as the process of implementing strategy ,
"Policies guide and channel the implementation of strategy and prescribe the processes within
the organization will function and be administered. Thus the term policy refers to organization
procedures, practices and structures, concerned with implementing and executing strategy."

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Supporting this view, Robert Mudric has defined Business policy as "A policy establishes

Scope of Business Policy

Business policies are statements of guidelines for Business thinking and action. They lay down
the approach before the management to deal with the challenges in the environment. They cover
the following broad areas that affect the decisions of the Organisation.
1. Business policy consists of a variety of subject that affect various interest groups in the
Organisation and Outside it.
2. Business policy is concerned with the various functional areas like production, human
resources, marketing and finance.
3. Business policy areas in two broad categories: Major and minor policies. The overall
objectives, procedures and control are covered in major policies. These policies are concerned
with each and every aspect of the Organisation, its structure, its financial status, its production
stature, its human resources and all those issues which require attention like mergers, research,
expansion, etc. Basically, the top management is involved in the framing of such major policies.
Further, the operations and activities are also carried Out by executives so that the organizational
objectives are met.

The minor policies are concerned with each segment of the organisation with emphasis oil details
and procedures. These policies are part of the major policies. The operational control call be
made possible only if the minor policies are implemented efficiently. The minor policies are
concerned with the day to day operations and are decided at the departmental levels. The minor
policies may cover relations with dealers, discount rates, terms of credit etc. Thus, Business
policies cover wide range Of Subjects ranging from operational level policies to the top level
policies.

Types of Policies:
Policies come into being in any organization in different ways. Koontz and O‟donnel have
classified policies on the basis of their source under the following categories-
1. Original Policy: The top management formulates policies for the important functional areas
of business such as production, finance, marketing etc. The objective is to help the concerned
functional managers in decision making in their respective areas. Thus originated policies are the
result of top management initiative. These policies are formulated in the light of the enterprises
objectives. They may be broad or specific depending on the degree of centralization of authority.
If they are broad, they allow the manager some operational freedom. On the other hand, if they
are specific they are implemented as they are.

2. Appealed Policies: Managers often confront with particular situations as to whether they have
the authority to take a decision on a particular issue or problem. The policies regarding some
issues may be unclear or may be totally absent. In such case, he appeals the matter to his
superiors for thinking. Appeals are taken upwards till they reach the appropriate level in the
hierarchy. After thorough examination of the issues involved, policy decision would be taken at
the appropriate level.

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3. Implied Policies: In some cases there may not be specific policies. Managers draw meaning
from the actions and behaviour of their superiors. Though there is no explicit policy, managers
may assume it in a particular way and go about in their day-to-day operations.

4. Externally Imposed Policies: These are the policies which are not deliberately conceived by
the managements. They are rather, imposed as the organizations by the agencies in the external
environment like Government Trade Unions, Industry Association, Consumer Councils etc.
These agencies to protect the interest of the respective groups may lay down certain policies to
be followed by the business. As the interaction of the business with external environment is
increasing, one can find many policies thus coming into being in any modern business. For
instance, the recruitment policy of the organization is influenced by the Govt‟s policy towards
reservation to weaker sections. Anti-pollution measures, concern for the quality of the product,
customer care and service etc. come under this category.

Elements and processes of business policy

After understanding the concept of Business policy, following features can be identified:
 General Statement of Principles: Policies are general statement of principles followed by
Business for the attainment of organizational objectives. These principles provide a guide to
action for the executives at different levels.
 Long Term Perspective: Business policies have a long life and are formulated with a long
term perspective. They provide stability to the organization.
 Achievement of Objectives: Business policy is aimed at the fulfillment of organisational
objectives. They provide a framework for action and thus help the executives to work towards
the set goals.
 Qualitative Conditional and General Statements: Business policy statements are qualitative
in nature. They are conditional and defined in general manner. These statements use words as to
maintain, to follow, to provide etc. They call be specific at times but most of the times, a
Business policy tends to be general.
 Guide for Repetitive Operations: Business policies are formulated to act as a guide for
repetitive day to day operations. They are best as a guide for the activities that occur frequently
or repeatedly.
 Hierarchy: Business policies have an hierarchy i.e. for each set of objectives at each level of
management there is a set of policies. The top management determines the basic overall policy,
then the divisional and / or departmental policies are determined by the middle level
management and lower level policies are more specific and have a shorter time horizon than
policies at higher levels.
 Decision Making Process: Business policy is a decision making process. In formulating
Business policy one has to make choices and the choice is influenced by the interests and
attitudes of managers engaged ill making the policies.
 Mutual Application: Business policies are meant for Mutual application by subordinates. They
are made for some specific situation and have to be applied by the members of the organisation.

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 Unified Structure: Business policies tend to provide predetermined issues and thus avoid
repeated analysis. They provide a unified structure to other types of plans and help mangers in
delegating authority and having control over the activities.
 Positive Declaration: Business policy is a positive declaration and a command to its
followers. It acts as a motivator for the people following it and thus they work towards the
attainment of the objectives efficiently and effectively. The Business policy lays down the values
which dominate organization’s actions.

Factors Determining Business Policy

The Business policy of an organization is influenced by various interrelated and interacting,
factors. These factors can be classified as internal and external factors. The determinants which
are internal to the firm/organization and which influence the decisions directly are known as the
internal factors. External factors include all those factors which act from outside the firm and
influence the organization externally. We discuss these determinants one by one below:
Internal Factors The determinants include the Business mission, Business objectives, Business
resources and the management values which are all internal to the organisation and play a very
important role in the formulation of Business policy.
1. Business Mission: The policy maker has to understand the Business mission, so that the
policy is in tune with it. Business mission provides the company with the meaning for which it
exists and operates. Because policy provides guidelines for managerial action, it has to be made
in a manner that it accomplishes the Business mission.
2. Business Objectives: Another internal determinant of Business policy are the Business
objectives. All organizations frame organisational objectives and work towards their
achievement. Policy makers must take into account the economic, financial and other objectives
of the company.
3. The Resources: The organisation has to carry out its activities keeping in mind the resources
it has. The Business policy has to identify the various resources available and then only call it be
made sound. The size of plants, capital structure, liquidity position, personnel sk0is and
expertise, competitive position, nature of product etc. all help in the formulation of Business
policy.
4. Management Values: Business policy reflects the values imbibed in the organisation. The
personal values of the managers forming Business policy influences its formulation.
Management values differ from organisation to organisation. It is an important determinant of
Business policy.

External Factors These include the forces external to the firm. The external determinants of
Business policy are industry structure, economic environment and political environment.
1. Industry Structure: The formulation of Business policy is influenced by the industry ill
which the firm exists. The structure of industry comprises of size of firms, the entry barriers,
number of competitors etc. The Business policy is formulated keeping in mind competitors,
strategies, policies, etc.
2. Economic Environment: Economic environment comprises of the demand, supply, price
trends, the national income, availability of inputs, the various institutions etc. It includes all these
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factors which influence the policies of the firm. Therefore, it becomes one of the most important
determinants of Business policy.
3. Political Environment: The firm has to carry Out its activities in accordance with the
government regulations and policies. If these are not complied with the firm would not be able to
meet its objectives in ail efficient manner. The various policies like monetary policy, fiscal
policy, credit policy influence the Business policy of the firm.

4. Social Environment: The firm affects various sections of the society. The various sections ill
turn influence the activities of the firm. The social beliefs of the managers influence policies.
The religious, cultural and ethnic dimensions have to be dealt with while formulation policies of
an organisation.
5. Technology: Every now and then, new technologies are entering the market. An organisation
has to change with the changes in the environment. It has to remain up to date with respect to
technology it uses. Thus technology also plays an important role in formulation of Business
policy.

STRATEGIC MANAGEMENT

Strategic management has been defined by Harrison (2003) as a process through which
organizations analyze and learn from their internal and external environment, establish strategic
direction, creates strategies that are intended to move the organization in that direction, and
implement those strategies, all in an effort to satisfy the key stakeholders.
Strategic management is the art and science of formulating, implementing and evaluating cross
functional decisions that will enable an organization to achieve its objectives. It is the process of
specifying the organization's objectives, developing policies and plans to achieve these
objectives, and allocating resources to implement the policies and plans to achieve the
organization's objectives. Strategic management, therefore, combines the activities of the various
functional areas of a business to achieve organizational objectives. It is the highest level of
managerial activity, usually formulated by the Board of directors and performed by the
organization's Chief Executive Officer (CEO) and executive team. Strategic management
provides overall direction to the enterprise and is closely related to the field of Organization
Studies.
Strategic management is a broader term that encompasses all activities that determine the
missions and goals of an 'organization within the context of its external environment. Hence,
strategic management can be viewed as a series of steps in which top management should
accomplish the following tasks:
1. Environmental analysis/scanning
2. Establish the organization’s mission, vision and develop its goals
3. Formulate strategies (at corporate level, the business unit level, and the functional level) that
will match the organization’s strengths and weaknesses with environment's opportunities and
threats.

4. Implements the strategies

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 5. Engage in strategic control, monitoring and evaluation activities to ensure that the
organization’s goals are attained.

Evolving nature and Perspective of Business strategy

PHASE 1
The first phase in the evolution of the strategy paradigm involved “basic financial planning” in
the 1950s where the typical planning focus for the firm was the preparation of the financial
budget with a time horizon barely beyond 12 months. These organisations tended to exhibit
strong strategies however these strategies were rarely documented. The success of the
organisation was dependent on the quality of the CEO and the top management team and their
knowledge of products, markets and rivals (Gluck et al, 1980). In the literature Drucker (1954, p.
77) drew attention to this issue arguing that it is the role of top management to address the key
questions with respect to strategy: “What is our business and what should it be?”
Interestingly, Selznick (1957, pp. 62, 67-68) in his book Leadership in Administration set the
foundation for some of the basic concepts of the design school at this time: “Leadership sets
goals, but in doing so takes account of the conditions that have already determined what the
organization can do and to some extent what it must do In defining the mission of the
organization, leaders must take account of (1) the internal state of the policy: the strivings,
inhibitions, and competences that exist within the organization, and (2) the external expectations
that determine what must be sought or achieved if the institution is to survive.” Selznick (1957,
pp. 62-63) also introduced the concept of strategy implementation when he referred to building
policy “into the organization’s social structure.”

PHASE 2
The second phase of “forecast-based planning” in the 1960s resulted in organizations embracing
a longer time horizon, environmental analysis, multi-year forecasts and a static resource
allocation as the firm responded to the demands of growth (Gluck et al, 1980

PHASE 3
In the 1970s there was a move to the third phase of “externally oriented planning” in response to
markets and competition as strategic planning enjoyed the peak of its popularity. Planning in this
form included a thorough situation analysis and review of competition, an evaluation of
alternative strategies and dynamic resource allocation (Gluck et al, 1980). Prescriptive
techniques for strategy were at their peak at this time with the planning school dominant
(Mintzberg, Ahlstrand and Lampel, 1998) and numerous simplified frameworks for strategic
analysis were put forward mainly by industry consultants.

PHASE 4
In the 1980s firm’s embraced what became known as the strategic management phase - the
fourth phase - being the combination of the firm’s resources to achieve competitive advantage.
This phase included:
“(1) A planning framework that cuts across organizational boundaries and facilitates strategic
decision making about customer groups and resources. (2) A planning process that stimulates

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entrepreneurial thinking. (3) A corporate values system that reinforces managers’ commitment to
the company strategy” (Gluck et al, 1980, p. 158).

PHASE 5
By the mid-1980s it was evident that the changes in the evolution of strategic planning into
strategic management were not leading to significant improvements in strategy implementation.
In addition, at this time there was apparent a greater sense of the importance of organizational
culture and internal politics in the strategic management process (Wilson, 1994; Bonn and
Christodolou, 1996). The ineffectiveness of the strategic management process led many experts
in the field to emphasise the need for strategic thinking - the fifth phase in the evolution of the
paradigm. In this context Stacey (1993, p. 18) observes: “…that although the procedures and
analytical techniques of modern strategic management may not be of much direct practical use,
they do create a framework for strategic thinking and, it is assumed, managers who think
strategically are bound to act more effectively in dealing with the future."

Corporate Planning

Nature of Strategy and Strategic Management Decisions

•Long term direction of an organization

– Where are we going?
– Organization vision
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•Organizational purpose
– Defines obligations of the organization to its stakeholders
– Defines the goals, objectives and priorities of the organization
•Concern with the scope of an organization’s activities
•Matching of the activities of an organization to the environment in which it operate
•A unifying (integrating) pattern of decisions – a common thread
• Business Domain
– Scope of an organization‘s activities
– Product/market scope
– What the organization will do and what it will not do
• Strategic fit
– Matching of activities of an organization to the environment
– Organizational positioning

• Competitive advantage
-Cost leadership
-Differentiation
-Focus
•Basis of attracting customers
• Affect operational decisions

Importance of strategic management

Strategic management has gained prominence in the world of business. Most of the current
events covered in such business publications as the Economist, Business Week, and the Wall
Street Journal encompass strategic management concepts. It is important that one has to
understand the basics of strategic management process, as domestication and foreign
competition intensifies, government influences on business operations expands.

Employees, supervisors, and middle managers ought to familiarize themselves on issues of

strategic management. An appreciation of their organization’s strategy helps them. Relate their
work assignments more closely to the direction of the organization’s, thereby enhancing them
job performance and opportunity for promotion and making their organization more effective.

Value of Strategic Management to organization

•Providing direction

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•Vision, mission, objectives
•Framework for company actions
•Adaptation to external change
•Focus on strategic issues
•Competitive advantage
•Effective/ efficiency of organization
•Effective resource allocation
•Focus on key issues

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