Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

The Strategic Management Process Learning Objectives Understand the elements or stages of the strategic management process Illustrate the different perspectives on strategy development Understand the characteristics of strategic thinking and how strategic thinking fits into the strategic management process Thinking Strategically: The Three Big Strategic Questions 1. Whats the companys present situation? 2. Where does the company need to go from here? Business(es) to be in and market positions to stake out Buyer needs and groups to serve Direction to head 3. How should it get there? A companys answer to how will we get there? is its strategy Video Presentation The Google Experience (The Oprah Winfrey Show) Business Policy Refers to the sets of rules designed by the organizations to confront a recurring situation that threatens the organizations mission. It is the a supporting instrument to aid in accomplishing the companys objectives and formulating, implementing and controlling strategy. Last resort for the organization in confronting problems that occurred frequently

Examples of Business Policy A company will not consider any cost reduction options if it means compromising quality. A company sells exclusively on cash terms. A rental company charges a deposit for rented material. A rental car company charges extra money for delivering the rented car in another location. A company hires personnel with experience only. Policy VS Strategy Alfred Chandler defined strategy determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals Strategy refers to the method or route a company chooses to achieve its objectives after careful assessment of its resources and environment. Strategy therefore refers to the determination of long-term corporate objectives and the methods along with the functional policies proposed by the company to realize these objectives

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

Strategy is a comprehensive, long-term plan indicating how the corporation will achieve its missions and objectives.

On Alfred Chandler definition of Strategy: Planning is the end result of strategy design From a conceptual standpoint, the terms strategy and policy have different and distinct meanings. However, on the more practical level of day-to- day usage, their distinctiveness often becomes blurred. Policy VS Strategy Policy Drafted to be used as broad guidelines by the organizations decision makers policies streamline and help focus the decisions made and the consequent actions taken by an organization o general guidelines indicate how an organization should deal with recurring problems in its routine operation o By providing a prescribed path for handling repetitive matters, they save time and effort. o these guidelines are used to help organizational leaders make all other decisions; they represent a framework for decision making Strategy an organizations specific plans of action a general program of action to achieve long-term objectives of the companies, the deployment of resources to attain these objectives, and major policies to be followed in using these resources o Strategic planning permits the organization to chart a course of action into the future that coordinates and balances all the contributions made by the entire organization, yet strategic planning must be flexible enough to absorb and respond, drive the organization forward, and adapt to the current business environment Therefore All strategic decisions and subsequent actions of the organization should revolve around and occur in accordance with the guidelines provided by policy

Strategy and Tactics Strategy An elaborate systemic plan of action Tactics A plan for attaining particular goal

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

Strategic Management Strategic Management is the process through which organizations analyze and learn from stakeholders inside and outside of the organization, establish strategic direction, create strategies that are intended to help achieve established goals, and execute those strategies, all in an effort to satisfy key organizational stakeholders. Strategic Management are the set of managerial decisions and actions that determines the long-run performance of an organization The role that the environment plays has influenced managers in developing a systematic means of analyzing the environment, assessing their organizations strengths and weaknesses, identifying opportunities that would give the organization a competitive advantage, and incorporating these findings into their planning. The value of thinking strategically has an important impact on organization performance. 1. Strategic management is that set of managerial decisions and actions that determines the long-run performance of an organization. 2. It entails all of the basic management functionsplanning, organizing, leading, and controlling.

Strategic Management Process External Environment Analysis The external environment of business may be divided into two sectors: Broad Task All trends and stakeholders in the external environment should be analyzed at both the domestic and international level Broad Environment The broad environment consists of domestic and global forces such as socio-cultural trends technological political trends economic trends The broad environment forms the context within which the firm and its task environment exist. Task Environment The task environment consists of external stakeholders -- groups or individuals outside the organization that are significantly influenced by and/or have a major impact on the organization -- such as: Customers Suppliers Competitors

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

Internal Environment Analysis Internal stakeholders include managers, employees and the owners and their representatives Internal analysis includes an evaluation of internal stakeholders and the organizations resources and capabilities Purpose of internal analysis to determine strengths and opportunities for competitive advantage, and weaknesses and organizational vulnerabilities that should be corrected. A fully developed internal analysis includes an evaluation of internal stakeholders and the organizations resources and capabilities to determine strengths, weaknesses, and opportunities for competitive advantage, and to identify organizational vulnerabilities that should be corrected.

Strategic Direction Strategic direction involves setting long-term goals and objectives, such as mission and vision defines the purposes for which an organization exists and operates

Strategy Formulation Strategy is an organizational plan of action intended to accomplish goals. Corporate strategy formulation refers to domain definition, or the choice of business areas. Usually decided by the CEO and the board of directors. Business strategy formulation involves domain direction and navigation, or how to compete in a given area. Usually decided by division heads and business unit managers. Functional strategy formulation contains the details of how the functional areas such as marketing, operations, finance, and research should work together to achieve the business-level strategy. o Corporate strategy decisions are made by the CEO and/or board of directors. , If an organization is only involved in one area of business, then business strategy decisions tend to be made by the same people. o In diversified organizations, business strategy decisions are made by division heads or business unit managers. o Functional decisions are made by functional managers, who represent organizational areas such as operations, finance, personnel, accounting, research and development, or information systems.

Strategy Implementation Strategy implementation involves creating the functional strategies, systems, structures, and processes needed by the organization in achieving strategic ends. Strategic control refers to the processes that lead to adjustments in strategic direction, strategies, or the implementation plan when necessary.

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

Strategic restructuring involves a renewed emphasis on what an organization does well, combined with a variety of tactics to revitalize the organization and strengthen its competitive position.

Alternative Perspectives on Strategy Development Traditional Strategic Management Process Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT) Strategies should take advantage of strengths and opportunities or neutralize or overcome weaknesses and threats Environmental Determinism--the best strategy involves adapting to environmental, technical and human forces Strategy is deliberate (always planned and intended by management) Alternative Perspectives on Strategy Development o The traditional process for developing strategy consists of analyzing the internal and external environments of the organization to arrive at organizational strengths, weaknesses, opportunities and threats (SWOT). The results from this "situation analysis", as this process is sometimes called, are the basis for developing missions, goals and strategies. o Environmental determinism argues that good management is associated with determining which strategy will best fit environmental, technical and human forces at a particular point in time, and then working to carry it out. From this perspective, the most successful organization will be the one that best adapts to existing forces. o Deliberate strategy implies that managers plan to pursue an intended strategic course.

Contemporary Views o Adaptation--strategy involves submitting to existing forces. o Enactment--firms can, in part, create their environments. o Deliberate--intended by management (planned) o Emergent--organizations learn as they go by trial and error. Strategy is the pattern in a stream of decisions. Stakeholder view o Organizations are at the center of a network of contacts o Increasing use of partnering

The principle of enactment, on the other hand, assumes that organizations do not have to submit to existing forces in the environmentthey can, in part, create their environments through strategic alliances with stakeholders, advertising, political lobbying and a variety of other activities Deliberate strategy implies that managers plan to pursue an intended strategic course. In some cases, strategy simply emerges from a stream of decisions. An emergent strategy is one that was not planned or intended. According to this perspective, managers learn what will work through a process of trial and error

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

The stakeholder view of strategic management considers the organization from the perspective of the internal and external constituencies that have a strong interest in the organization.

Resource-based View Organization is made up of resources: financial, physical, human, general organizational (structure, systems, culture, reputation, relationships with stakeholders). Sustainable competitive advantage--Comes from a resource that is valuable in the market, possessed by only a small number of firms (rare), and costly or difficult to imitate in the short term. Effective development or acquisition of organizational resources may be the most important reason that some organizations are more successful than others. o The resource-based view of the firm takes the position that an organization is a bundle of resources. - financial resources, including all of the monetary resources from which a firm can draw, - physical resources such as plant, equipment, location and access to raw materials, - human resources, which pertains to the skills, background and training of individuals within the firm and - general organizational resources, which includes a variety of factors that are peculiar to specific organizations. o In applying the resource-based-view to the strategic management process, - strengths are firm resources and capabilities that can lead to a competitive advantage. - weaknesses are resources and capabilities that the firm does not possess but that are necessary, resulting in a competitive disadvantage, - opportunities are conditions in the broad and task environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses and/or neutralize environmental threats, - threats are conditions in the broad and task environments that may stand in the way of organizational competitiveness or the achievement of stakeholder satisfaction. o Sustainable competitive advantage may be achieved if a resource allows the firm to take advantage of opportunities or neutralize threats, if only a small number of firms possess it, and if it is costly or impossible to imitate. o Many strategy scholars believe that effective development of organizational resources is the most important reason that some organizations are more successful than others.

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management

Prof. Noel M. Teves

The Most Successful Organizations Analyze and Manage Their Stakeholders Well Stakeholder Analysis involves: Identifying and Prioritizing Key Stakeholders Assessing Their Needs Collecting Ideas From Them Integrating this Knowledge into the Strategic Management Process Stakeholder Management includes: Communicating with Stakeholders Negotiating and Contracting with Them Managing Relationships with Them Motivating Them to Act in Beneficial Ways

Global Strategic Management Most successful firms eventually look to the global environment for opportunities to grow and develop Saturated domestic markets Profitable foreign markets Falling trade barriers Newly industrialized countries Similarity of industrialized nations Shift towards market economies English a universal business language Availability of lower-cost resources Uniformity in technical standards Opportunities to learn from foreign ventures A Combined Approach to Strategic Management Traditional/contemporary perspective--firms should adapt to forces in the external environment when it is unreasonable to try to change them, while being proactive in other areas. Also, strategy making is a combination of planning and learning. The approach also draws from organizational economics, especially pertaining to industry analysis Resource-based perspective--internal analysis leading to identification of sources of sustainable competitive advantage Stakeholder perspective--part of external analysis and alliance formation Global perspective--integrated throughout all aspects of strategic management

Strategic Thinking Strategic thinking is the term used to describe the creative aspects of strategic management Focus on strategic intent Long-term orientation Consideration of past and present Systems perspective Ability to seize unanticipated opportunities Scientific approach

Business Policy Chapter 1 Introduction to Business Policy and Strategic Management The Old Saying If you dont know where you going You wont get there

Prof. Noel M. Teves

In achieving success in your business without a plan, without a clear objective, without exactly where you want to be in the future, you and your company will be as if on a treasure hunt.

Really important question to strategic business planners What are you really, truly passionate about in your work? What is your company truly best at? What will your business be in 5-10 years? What are your business mantra (motto):example o Dont be evil (business mantra by google) o Peace of mind (buss mantra by FedEX) o Beat coke (buss mantra of Pepsi)

The End Chapter 1