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Catanduanes State University

Lecture Note in Management 16A


Business Policy and Strategy
Business Policy

It is the aggregate of the policy guidelines of different functional areas


viz. production, marketing, finance etc. in a company.
It is the major policy guidelines drawn by the board of directors to
regulate the overall direction in which company should move.
It is the process of study, process of decision and process of action
leading to development of effective business strategy.

Business Policy as a Discipline

The genesis of business policy


The origins of business policy can be traced back to 1911 when the
Harvard Business School introduced an integrative course in
management aimed at providing general management capability. This
course was based on case studies which had been in use at the school
for instruction purposes since 1908. However, the real impetus for
introducing business policy in the curriculum of business schools came
with the publication of two reports in 1959.
The Gordon and Howell Report sponsored by Ford Foundation had
recommended a capstone course of business policy which would give
participants an opportunity to pull together what they have learned in
the separate business fields and utilize this knowledge in the analysis
of complex business problems.
In todays situation business policy is considered as a integrative
course offered to those who have already been through a set of core
functional area courses.
The term Business Policy has been used traditionally though new
titles such as Strategic Management, Corporate Strategy and
policy and so on are now used extensively for the course.
The discussion has so far been related to the academic status of the
business policy course.
In practice however, the development has been along different lines.

EVOLUTION BASED ON MANAGERIAL PRACTICES


- Guleck has viewed the development in business policy as arising from the
use of planning techniques by managers. Starting from day-to-day planning
in earlier times managers till recently tried to anticipate the future through
the preparation of budgets and by using control systems like capital
budgeting and management by objectives.

However as these techniques were unable to emphasis the role of the


future adequately, long range planning came into use. But soon, long
range planning was replaced by strategic planning and later by
strategic management A term that is currently being used to describe
the process of strategic decision making. Strategic Management forms
the theoretical framework for business policy courses today.

HISTORICAL PERSPECTIVE OF BUSINESS POLICY

Hofer has viewed the evolution of business policy in terms of four


paradigm.
For the sake of convenience, these shifts may be considered as four
overlapping phases in the development of the subject of Business

Policy. It is interesting to note that the development of business policy


as a field of study has closely followed the demands of real life
business.
Ad hoc Policy According to Hofer and others the first phase which can
be traced back to the mid 1930s rested on the paradigm of Ad Hoc
Policy making. The need for policy making arose due to the nature of
the American business firms of that period.
The firms which has originally commenced operations in a single
product line catering to a unique set of customers in a limited
geographical area expanded in one or all of these three dimensions.
Informal control and co-ordination became partially irrelevant as
expansion took place and the need to integrate functional areas arose.
This integration was brought about by framing policies to guide
managerial action. Policy making became the prime responsibility of
erstwhile entrepreneurs who later assumed the role of senior
management.

Planned Policy formulation

Due to the increasing environmental changes in the 1930s and 40s in


the U.S. planned policy formulation replaced Ad Hoc policy making.
Based on this second paradigm the emphasis shifted to the integration
of functional areas in a rapidly changing environment.

Strategy Paradigm

Increasing complexity and accelerating changes in the environment


made the planned policy paradigm irrelevant since the needs of a
business could no longer be served by policy making and functional
area integration only. By the 1960s there was a demand for a critical
look at the basic concept of business and its relationship to the
environment. The concept of strategy satisfied this requirement and
the third phase based on a strategy paradigm emerged in the early
sixties.

Strategic Management

The current thinking which emerged in the eighties is based on the


fourth paradigm of strategic management. The initial focus of strategic
management was on the intersection of two board fields enquiry : The
strategic processes of business firms and the responsibilities of general
management. Thompson and Strickland say The approaches and
methods of analysis of strategic management have not yet coalesced
into theory of how to manage an enterprise. But they very definitely do
represent a powerful way of thinking to resolve strategic issues.
The resolution of strategic issues that affect the future of a business
firm has been a continual endeavor in the subject of business policy.
The endeavor is based on the development of strategic thinking. As
Whitefield says Really useful training (in strategic management should
yield) A comprehension of a few general principles with a through
grounding in the way they apply to a variety of concrete details. Most
likely, the students will forget the details and principles but remember
(usually unconsciously) new, non obvious ways of thinking
strategically. The general principles underlying strategic thinking have
been the focus of the efforts of researchers and academicians in the
field of Business Policy.

Business Policy

As defined by Christensen and others, 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.
The problems of policy in business like those of policy in public affairs
have to do with
The choice of purposes.
The molding of organizational identity and character.
The continuous definition of what needs to be done
And the mobilization of resources for the attainment of goals in
the face of competition or adverse circumstances.
This comprehensive definition covers many aspects of Business Policy
Firstly it is considered as the study of the functions and
responsibilities of the senior management related to those
organizational problems which affects the success of the total
enterprise.
Secondly, it deals with the determination of the future course of
action that an organization has to adopt.
Thirdly, it involves a choosing the purpose and defining what
needs to be done in order to mould the character and identify of
an organization.
Lastly, it is also concerned with the mobilization of resources,
which will help the organization to achieve its goals.

THE IMPORTANCE OF BUSINESS POLICY

Business Policy is important as a course in the Management curriculum


and as a component of executive development programs for middlelevel managers who are preparing to move up to the senior
management level. A study of Business Policy fulfills the needs of
management students as well as those middle-level managers. We
shall consider four areas where this course proves to be beneficial
For learning the course.
For understanding the business environment.
For understanding the organization.
For personal development.
The purpose of Business Policy is three fold
To integrate the knowledge gained in various functional areas of
management.
To adopt a generalist approach to problem solving.
To understand the complex inter-linkages operating within an
organization through the use of a systems approach to decisionmaking and relating these to the changes taking place in the external
environment.

STRATEGY FORMULATION
Includes developing a vision and mission, identifying an organizations
external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternative
strategies, and choosing particular strategies to pursue

Deciding what new businesses to enter,


What businesses to abandon,
How to allocate resources,
Whether to expand operations or diversify,
Whether to enter international markets,

Whether to merge or form a joint venture,


How to avoid a hostile takeover.

STRATEGIC MANAGEMENT
Art & science of formulating, implementing, and evaluating, cross-functional
decisions that enable an organization to achieve its objectives

Set of decisions and actions used to implement strategies that will


provide a competitively superior fit between the organization and its
environment so as to achieve organizational goals
Responsibility = top managers & chief executive

Prime Task of Strategic Management

Peter Drucker: -- Think through the overall mission of a business. Ask the key
question: What is our Business?

STAGES OF STRATEGIC MANAGEMENT


STRATEGY IMPLEMENTATION
Requires a firm to establish annual objectives, devise policies, motivate
employees, and allocate resources so that formulated strategies can be
executed.
Often called the action stage
Strategy evaluation
reviewing external and internal factors that are the bases for
current strategies, measuring performance, and taking corrective
actions
Strategy formulation, implementation, and evaluation activities occur
at three hierarchical levels in a large organization: corporate, divisional
or strategic business unit, and functional
Strategic management helps a firm function as a competitive team
INTEGRATING INTUITION AND ANALYSIS
Most organizations can benefit from strategic management, which is
based upon integrating intuition and analysis in decision making
Intuition is particularly useful for making decisions in situations of great
uncertainty or little precedent
INTEGRATING OBJECTIVES, STRATEGIES, AND POLICIES
The strategic management process attempts to organize quantitative and
qualitative information under conditions of uncertainty.
Intuition is based on:

Past experiences
Judgment

Feelings

Intuition is useful for decision making in:

Conditions of great uncertainty


Conditions with little precedent

Strategic Management Process

Defining the organizations purpose, mission, and objectives

A Mission Statement defines the organization's purpose and


primary objectives. Its prime function is to define the key
measure or measures of the organizations success.

Mission Statement Creation


1) First, identify your organizations winning idea- what makes your
organization stand out from its competitors & is the reason that
customers will choose your organization over others.
2) Second, identify the key measures of your success. (What is it that
your organization has that others dont?).
3) Create a measurable goal by combining steps 1 & 2.
REMEMBER: A Mission Statement should be concise and precise which
expresses your ideas, measures and desired result.
Example:
Winning Idea Farm Freshness
Two Key Measures of Success Freshness & Customer Satisfaction

The mission statement of Farm Fresh Produce is:


To become the number one produce store in Main Street by selling the
highest quality, freshest farm produce, from farm to customer in under 24
hours on 75% of our range and with 98% customer satisfaction.
Vision Statement
Vision Statements also define the organizations purpose, but this time
they do so in terms of the organizations values rather than bottom line
measures (values are guiding beliefs about how things should be
done.) The vision statement communicates both the purpose and
values of the organization.
Vision Statement Creation

First identify your organizations mission. Then uncover the real,


human value in that mission.
Next, identify what you, your customers and other stakeholders will
value most about how your organization will achieve this mission.
Combine your mission and values, and polish the words until you have
a vision statement inspiring enough to energize and motivate people
inside and outside your organization.

Example:

Earlier example of produce:

4 most important things owner identifies are:


freshness
healthiness
tastiness
local-ness of the produce.

We help the families of Main Town live happier and healthier lives by
providing the freshest, tastiest and most nutritious local produce: From
local farms to your table in under 24 hours.

Statement of Purpose
Your purpose behind your organization.
Example:
We will provide full scholarships for financially meritable students who
demonstrate a willingness in pursuing higher education and who
maintain a minimum grade point average of 2.0 along with a personal
letter of interest. We are committed in giving students a positive
outlook for their future so they may have the same opportunities and
experiences as their peers. In addition, to enhance the changes of
receiving this scholarship, a portfolio containing honors or any
exceptional work completed over the years would be a great addition
to the interview.
Selecting a Strategy
Domain of Strategy

strategic competitiveness and above normal returns

concerns managerial decisions and actions which materially affect the


success and survival of business enterprises
involves the judgment necessary to strategically position a business
and its resources so as to maximize long-term profits in the face of
irreducible uncertainty and aggressive competition
strategy is the linkage between a business and its current and future
environment

Definition of Strategy

The determination of the long run goals and objectives of an


enterprise, the adoption of courses of action and the allocation of
resources necessary for carrying out these goals
Alfred Chandler, Strategy and Structure

Corporate strategy... defines the scope of the business in terms of the


industries and markets in which it competes.

includes decisions about diversification, vertical integration,


acquisitions, new ventures, divestments, allocation of scarce
resources between business units

Business strategy... is concerned with how the firm competes within a


particular industry or market... to win a business unit must adopt a
strategy that establishes a competitive advantage over its rivals.

Functional strategy... the detailed deployment of resources at the


operational level

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