Chapter 1

CONCEPTS OF POLICY
AND STRATEGY
Without a strategy, the organization
is like a ship without a rudder, going
around in circles.

Joel Ross and Michael Kami

 Where is the rudder?

A business organization is like a ship. It has captain(the President/CEO) and

the crew( Employees ) and a structure. The ship has a destination to reach to
be travelled along rough seas and so is the business.
 Topic outline for the chapter

Chapter 1 - Concepts of strategic management

a) Management versus strategic management

b) Policy versus strategy
c) Origins of strategy
d) Concepts of strategy by various authors
e) Strategy versus tactics
f) Benefits from studying/adopting strategic management
g) Basis of policies and strategies
h) Approaches in developing policies and strategies
i) Who should develop and implement policies and strategies?
j) Strategic decisions
k) Board of Directors continuum
 The concerns of the
strategic manager

1. Make the business organization profitable

2. Make the business competitive
3. To allow the business to grow and/or expand
4. To make a positive contribution to the
economy and society at large
5. To make the business stable and sustainable
on a long-term basis
 Management versus Strategic Management
Management is fundamentally about planning, organizing, directing,
controlling, evaluating, etc. Policy business policy in particular - is a tool
and/or control measures that forms part of management system and managing
a business.

In recent years, business policy has evolved into what is now known as
strategic management which is a tool for managing the business
organization. It has outshined the context of business policy such that strategic
management has gained popularity as an effective approach over business
policy and has since maintained its role.

Strategic management is a field of study that incorporates the integrative

concerns of business policy with a heavier environmental and strategic
emphasis. Strategic management has tended to replace business policy as the
preferred name of the field ( Wheelen and Hunger, Hoskisson, et al ).

In the course of running the business in a real setting, business policy and
strategies oftentimes collide thereby inviting and/or creating confusion. When
conflict exist between or amongst policies and strategies, organizational
problems or dilemmas begin. How well managers handle a scenario of
conflicting policies and strategies determines the direction of the business.
 Evolution of Business Policy and Strategy
Policy is essentially a type of plan laying down broad direction and
sometimes specific guidelines or rules as basis for decision making and
execution of organizational activities.

Policies and strategies furnish the fundamental framework for plans by

chaneling decisions and often predicting them. The more strategies
and policies are clearly understood, the more consistent and effective
will be the framework of enterprise plans.

Business policies generally refer to guidelines and/or set of rules that

guide the conduct of the business in pursuit of profit and other strategic
objectives. Business policies come in many types or forms designed to
achieve end results and developed in coherent with the duties and
responsibilities of various functional units ( e. g., Human resource,
sake/marketing, production, etc.)

Business policy is essentially a general management orientation and

tends primarily to look inward with its concern for properly integrating
the corporations many functional activities.
 More on evolution of Business Policy and Strategy

In many instances, business policies exists amidst absence of business

strategy or in some instances, strategies may exist without established
business policies.

If ever they exists, business policies are generally directional in nature

and strategy is more operational in context.

Business policies are often formal or written and strategies may be

informal and not necessarily written and often confidential.

For purposes of classroom discussion, policy and strategies are taken

to mean synonymously or interchangeably.
 Origin and nature of strategy
Strategy has its roots in military science. The word strategy is meant
to be as follows:

Strategy originated from the Greek word strategos meaning a

general leading an army.

Given its Greek orientation, Strategy is considered an act of a

general.

As a verb, stratego means to plan the destruction of ones

enemies through effective use of resources

The application of military strategies in management and corporate

structures has been widely discussed by by Sun Tzu (The Art of War ),
M. Mushashi ( The Book of Five Rings), Kautilya ( Arthasastra ), etc.
 Concepts of strategy by some Authors
Authors Thompson and Strickland ( 1999) characterized strategy as follows:
A set of competitive moves and business approaches that management is
employing to run the company. Among others, strategy is managements
game plan to:
Attract and please customers
Stake out a market position
Conduct operations
Compete successfully
Achieve organizational objectives

Strategy is a comprehensive master plan of a corporation stating how the

corporation will achieve its mission and objectives. It maximizes competitive
advantage and minimizes competitive disadvantage. For example, when
Philippine Airlines realized that the company is losing grounds even in its own
territories, the Philippine islands and its foreign routes, its majority owners
( then the Philippines government) privatized the firm and further on, its new
owners sold some of assets and focused on areas and concerned they believed
profitable and competitive ( Wheelen and Hunger, 2004).
 More on concepts of strategy by other authors

Traditionally meant to be a grand plan made in the light of what it was

believed an adversary might or might not do.
Strategy derives its relevance given the existence competition in business.
It presumes a negative scenario - if only to develop options.
It also connotes general program of action and deployment of emphasis and
resources to attain comprehensive objectives.
A process of deciding on objectives of the organization, on changes in these
objectives, on the resources used to attain these objectives, use and
disposition of these resources (Anthony).
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 to carry out those goals ( Chandler).
A decision about how to use available resources to secure a major objective
in the face of obstruction (Koontz & ODonnell).
Unlike policy, strategy implies actions and guides decision making spelling
out directions to be taken.
Strategy may, in some extreme or necessary cases, exists without a policy.
 The concepts of strategic management

Strategic management is that set of managerial decisions and actions

that determine the long-run performance of a corporation. It includes
environmental scanning ( both external and internal ), strategy
formulation ( strategic and long-range planning), strategy
implementation, evaluation and control. The study of strategy
management , therefore, emphasizes the monitoring and evaluation of
external opportunities and threats in the light of a corporations
strengths and weaknesses ( Wheelen and Hunger, 2004 ).
Adopting the concept of strategic management in the workplace
necessitates setting down a written direction in the form of smart*** vision and
mission statement supported by strategic objectives and strategies as well as
backed by practical approaches to its implementation/execution with provisions
for monitoring and control measures as well as option for corrective measures
as necessary in order to achieve desired vision ( Orcullo, 2005 ).

*** Smart it means a vision statement that is Specific, Measurable,

Attainable, Realistic and Resource-bound, Time-bound.
 Benefits of strategic management
Authors Wheelen and Hunger ( 2004 ) cited a research of nearly 50
corporations in various countries and industries and found the three
most highly rated benefits of strategic management to be:

a) Clearer sense of strategic vision for the firm

b) Sharper focus on what is strategically important
c) Improved understanding of a rapidly changing environment

To be effective, however, strategic management need not always be a

formal process. Wheelen and Hunger suggests the following simple
questions:

d) Where is the organization now? ( Not where do we hope it is ! )

e) If no changes are made, where will the organization be in a year? 2 years?
10 Years? Are the answers acceptable?
f) If the answers are not acceptable, what specific actions should
management undertake? What are the risks and payoffs involved?
 Strategy versus tactics

As to level of conduct
Strategy is developed at the highest levels of management whereas are
tactics are employed at and related to lower levels of management.

As to regularity
Formulation of strategy is both continuous and irregular whereas tactics
are determined on a periodic cycle with fixed time schedule (e. g.,
budget).

As to subjective values
Strategic decision making is more heavily weighted with subjective
values of managers than is tactical decision making.

As to range of alternatives
The total possible range of alternatives from which management must
choose is far greater in strategic than in tactical decision making.
 Strategy versus tactics (cont. )
Uncertainty
Uncertainty is usually much greater in both the formulation and implementation of strategy
than in deciding upon and knowing the results of tactical decisions.

Nature of problems
Strategic problems are generally unstructured and tend to be one of a kind. Tactical
problems are more structured and often repetitive in nature.

Information needs
Formulating strategy requires large amount of information. Tactical information needs in
contrast rely more heavily on internally generated data( e. g. accounting systems, etc.)

Time horizon
Strategies are intended to, and do, last for long periods of time whereas tactics cover a
short duration and are more uniform for all parts of operating program (e. g., annual
budget).

Reference
Strategy is original in the sense that it is the source of origin for development of tactics.
Tactics are formulated within and in pursuit of strategies.
 Strategy versus tactics (cont. )
Detail
Strategies are usually broad and may have fewer details than tactics.

Type of personnel involved

Strategies are for the most part are formulated by top management and its staff
fewer in number as contrasted with the formulation of tactics where large
number of managers and employees usually participate in the process.

Ease of evaluation
It is usually considerably easier to measure the effectiveness and efficiency
of tactics than strategies.

Point of view
Strategies are formulated from corporate viewpoint whereas tactics are
developed principally from a functional point of view.

Importance
By definition, strategies are of the highest importance to an organization
with tactics of considerably less significance.
 Basis of policies and strategies

Legal mandate - As reflected in the articles of incorporation and

by-laws.

Vision/Mission Statement - Referring to the aims of thrust of

the company.

Specific objectives - Referring to the desired results to be

achieved.

Programs and policies The specific policies and strategies

needed to achieve the preceding mandate, vision/mission,
objectives.
 Approaches to identifying policies/strategies

Policy/strategy profile - A systematic examination of present

company policy/strategy - implicit and explicit. This is a sort of self-
examination, audit, and introspection.

Gap analysis - In this approach, the stimulus is an examination of

whether an end that has been established is likely to be achieved. If
not, the question becomes What strategies and policies must be
adopted to reach the sought ends?

Competitive strategy - This involves a thorough analysis of the

competitive forces operating in a firms environment and searching for
an alternative option. This also calls form finding the niche where the
firm is deemed competitive.
 Who should develop policies?

a) Policy development is essentially a job of the management.

b) Policy generation or development is top-down approach.
c) While policy development is essentially a management responsibility,
policy/strategy development through a combination of top-
bottom-top strategy is generally a good idea.

Who should implement the policy?

a) Management should take the leadership in implementing the policy

b) Managers and supervisors generally take the frontline act of
implementing the policy.
c) To be more meaningful, it is a must that the policy implementation
should be monitored at all levels seeing to it that the end goals of
the policies are achieved.
 What makes a decision strategic?

Wheelen and Hunger ( 2004 ) believed that unlike many other decisions,
strategic decisions deal with the long-run future of the entire
organization and have three characteristics as follows:

1. Rare: Strategic decisions are unusual and typically have no

precedent to follow

2. Consequential: Strategic decision should commit substantial

resources and demand a great deal of commitment from people at
all levels.

3. Directive: Strategic decisions set precedents for lesser decisions

and future actions throughout the organization.
Role of the board of directors in strategic management

Monitor - By acting through its committees,the board can keep abreast of

developments inside and outside the corporation, bringing to managements
attention development it might have to overlooked. A board should at least carry
out this task.

Evaluate and influence - A Board can examine managements proposals,

decisions, and actions; agree or disagree with them; give advice and offer
suggestions; and outline alternatives. Active board performs this task in addition
to the monitoring one.

Initiate and determine A board can delineate a corporations mission and

specify strategic options to its management. Only the most active boards take on
this task in addition to the two previous ones.

Source: Wheelen and Hunger ( 2004 ), p. 28

 Board of Directors continuum
Low High
(Passive) Degree of involvement in strategic management (Active)

Phantom Rubber Minimal Nominal Active Catalyst

Stamp Review Participation participation

Never knows Permits Formally Involved to a Approves Takes the

what to do, officers to reviews degree in the questions, leading role
if anything; make all selected performance and makes in
no degree of decisions. It issues that or review of final establishing
involvement. votes as the officers bring selected key decisions on and
officers to its decisions, mission, modifying
recommenda attention. indicators, or strategy, the mission,
tion on programs of policies, and objectives,
action management objectives. strategy, and
issues. Has active policies. It
board has a very
committees. active
Performs strategy
fiscal and committee.
management
audits

Source: Wheelen and Hunger ( 1994 )

 ahead

ahead
nths

head
ahead

rs
s
ah e ad

3-4 year

5-10 yea
Today

3 - 6 mo

ahead

ahead
1 year a
1 month

2 years
1 w ee k
President 1% 2% 5 % 10 % 15 % 27 % 30 % 10 %

Executive Vice President 2% 4 % 10 % 29 % 20 % 18 % 13 % 4 %

Vice President for

4% 8 % 15 % 35 % 20 % 10 % 5 % 3%
functional area
General Manager of a
2% 5 % 15 % 30 % 20 % 12 % 12 % 4 %
major division

Department Manager 10 % 10 % 20 % 39 % 10 % 5 % 1% 1%

Section Supervisor 15 % 20 % 25 % 37 % 3 %

Group supervisor 38 % 40 % 15 % 5 % 2%

Ideal allocations of time for planning in the average company

Source: Stahl and Grigsby ( 1992 ), p. 12 and Steiner ( 1969 )
Fundamentals in Strategic Management Publisher: Rex Book Store ( 2007 )
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