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Business Policy and Strategy

Maritoni Medalla, MBA-HTM

Strategic management is concerned with deciding on strategy and planning how that strategy is to be put
into effect.

Why is there a need for Strategic Management?

1. Due to Change: Everything, except change is not permanent. It does mean that only change is
permanent. Change makes planning difficult. But, firms may pro-act to the change rather than
just react to it. Strategic management encourages the top executives to forecast change and
provides direction and control. It will also allow the firm to take advantage of the opportunities
provided by the changes in the environment and avoid the threats or reduce the risk as the future
is anticipated. Thus, strategic management allows an enterprise to base its decisions on long-
range forecasts.
2. To Provide Guidelines: Strategic management provides guidelines to the employer about the
organization’s expectations from them. This would minimize conflict between job performance
and job demands. Thus, it provides incentive for employer and helps the organization in achieving
its objectives.
3. Probability for Better Performance: There is no clear research evidence that strategic
management leads to higher performance. But the majority of studies suggest that there is a
relationship between better performance and formal planning. It is also stated that businesses
which plan strategically have a higher probability of success than those which do not have.
4. Systematize Business Decisions: Strategic management provides data and information about
different business transactions to managers and helps them to make decisions systematically.
5. Improves Allocation of Resources: Strategic planning helps in deciding upon most feasible and
viable projects and thereby improves the allocation of resources to the viable projects.

Benefits of Strategic Management

Several corporations and institutions have been using strategic management. Organizations reap several
benefits from effective strategic management. The benefits of strategic management include:

1. It helps an organization to be proactive rather than reactive in shaping its future.

2. It helps organizations to make effective strategies through the use of a more systematic, logical
and rational approach to strategic choice.
3. It helps the organizations to achieve understanding and commitment from all managers and
employers.
4. It encourages the organizations to decentralize the management process involving lower level
managers and employees.
5. It can boost profits and high performance of the businesses.
6. It strengthens the employee commitment to and participation in formulating long-term goals.
7. It allows organizations foresee the environmental changes. Therefore, they reduce the chance of
being affected by the changes in the environment, marketplace and actions of competitors
8. It represents a framework for improved control of activities
9. It allows fewer resources and less time to be devoted for correcting erroneous or adhoc decisions.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
10. It provides cooperative, integrated and enthusiastic approach to tackling problems and
opportunities.

Challenges for Strategic Management

Strategic management faces different kinds of challenges:

1. Technological advancement - As necessity is the mother of invention, competition and a host of

other reasons are responsible for the rapid technological advancements and innovations. These
advancements and innovations of one firm poses challenges for the strategic decision-making of
the competing firms. Further, the continuous technological advancements led to the
obsolescence of the existing technologies. It creates a challenge for the strategic management of
those firms using obsolete technologies.
2. Product/Service Innovation - Technological advancements and innovations together with
changes in consumer tastes and preferences, needs and conveniences led to the continuous
product/service development and innovation of new products. The firms with new
products/services widely accepted by the customers enjoy distinctive strategic advantage
whereas other firms in the same industry suffer from strategic disadvantage. This leads to further
competition and creates new challenges for strategic management.
3. Global Issues - Due to the increase in scale and variety of operations of multinational and
transnational corporations in the country, even firms with no international operations are
experiencing the impact of globalization on their markets and operations. Since this trend is
expected to continue, almost all the organizations, irrespective of their size, nature of operations
and markets will have to consider global issues in their strategic management process.
4. Quality Issues - Quality today does mean an organization — wide commitment to enhance the
value of goods or services to the customer at each and every stage — from the stage of product
design, raw material, every stage of production process, to the place of marketing (or selling) to
post sale service. Japanese firms once produced cheap products, presently they are producing not
only low cost but most qualitative products. In fact, today’s customers feel happy to buy a
Japanese-made product in view of its quality. Hence, Japanese firms enjoy strategic advantage
position in this regard.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
II. THE TASKS OF A MANAGER

Henry Mintzberg challenges the traditional view that managers plan, organize, direct and control.
The point is that these words are too vague to understand the reality of managerial work. The managers
are programmed to schedule time, process information, make decisions and so on. Hence, he must
concentrate his efforts on the specialized functions of the organizations, where he could more easily
analyze the procedures and qualify the relevant information. This is due to the increasing pressure on his
job from customers, subordinates with more democratic norms, demands from the government and
increasing influences from outsiders.

Roles of a Manager

Managers perform different roles as shown in below figure. This gives rise to three informational
roles.

Interpersonal Role

The important interpersonal roles of strategists are:

• Figurehead Role: Managers perform the duties of a ceremonial nature as head of the organization
or a strategic business unit or a department. Duties of interpersonal roles include routine,
involving little serious communication and less important decisions. However, they are important
for the smooth functioning of an organization or a department.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
• Leader Role: The manager, as in charge of the organization/department, coordinates the work of
others and leads his subordinates. Formal authority provides greater potential power to exercise
and get the things done.
• Liaison Role: As the leader of the organization or unit, the manager must perform the functions
of motivation, communication, encouraging team spirit and the like. Further, he must coordinate
the activities of all his subordinates, which involves the activity of liaison.

Informational Role

Manager emerges as the nerve center of his organization/department in view of his interpersonal
links with his/her subordinates, peers, superiors and outsiders. Therefore, the manager must play the
information role effectively to let the information flow continuously from one corner to another corner.

The information roles of a manager include:

• Monitor Role: As a result of the network of contacts, the manager gets the information by
scanning his environment, subordinates, peers, and superiors. Managers mostly collect
information in verbal form often as gossip, hearsay, speculation and through grapevine channels.
• Disseminator Role: Manager disseminates the information, and he collects from different sources
through various means. He passes some of the privileged information directly to his subordinates,
who otherwise have no access to it. The manager will play an important role in disseminating the
information to his subordinates when they don’t have contact with one another.
• Spokesman Role: Some insiders and outsiders control the unit/department or the organization.
The manager must keep them informed about the developments in his unit. The manager must
keep his superior informed of every development in his unit, who in turn informs the insiders and
outsiders. Directors and shareholders must be informed about the financial performance,
customers must be informed about the new product developments, quality maintenance,
government officials about implementation of law, etc.

Decisional Roles

Information is an important and basic input to decision-making. The managers play a crucial role in
decision-making system of the unit. Only the manager can commit the department to new course of
action, and he has full and current information to take set of the decisions that determine the
department’s or organizational strategy. The decisional roles of the manager are:

• Entrepreneurial Role: As an entrepreneur, the manager is a creator and innovator. He seeks to

improve his department, adapt to the changing environmental factors. The manager would like
to have new ideas, initiates new projects and initiates the developmental projects.

According to Peter F. Drucker, “the manager has the task of creating a true whole that is larger than the
sum of its parts, a productive entity that turns out more than the sum of the resources put into it.”

• Disturbance Handler Role: Entrepreneurial role describes the manager as the voluntary initiator
of change, the disturbance handler role presents the manager as involuntarily responding to
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
pressures. Pressures of the situation are severe and highly demand the attention of the manager
and as such the manager cannot ignore the situation. For example, workers strike, declining sales,
bankruptcy of a major customer, etc., are some such situations.

The manager should have enough time in handling disturbances carefully, skillfully and effectively.

• Resource Allocator Role: The most important resource that a manager allocates to his/her
subordinates is his time. The manager should have an open-door policy and allow the
subordinates to express their opinions and share their experiences. This process helps both the
manager and his subordinates in making effective decisions. In addition, the manager should
empower his subordinates by delegating his authority and power.
• Negotiator Role: Managers spend considerable time in the task of negotiations. He negotiates
with the subordinates for improved commitment and loyalty, with the peers for cooperation,
coordination and integrations, with workers and their unions regarding conditions of
employment, commitment, productivity, with the government about providing facilities for
business expansion, etc.

These negotiations are integral part of the manager’s job for only he has authority to commit
organizational resources and is nerve center of information.

Though the different roles of a manager are discussed separately for convenience, they are, in fact
inseparable. The manager must perform these roles simultaneously by integrating one with the another.
Thus, the major role of the manager is integrating all the roles while playing managerial role or performing
his tasks. In fact, the manager cannot play any one role while isolating the other roles. As a strategist, the
manager must integrate all the roles in decision-making while performing his tasks.

SHAREHOLDERS AND STRATEGIC MANAGEMENT

The shareholders are the owners of the company. But it is not possible for them to manage the
day to day operations of their company their company as they are:

• mainly occupied in various activities

• large in number
• scattered throughout the length and breadth of the country
• not expected to have managerial skills. Hence, they elect the directors to act as their
representatives and manage the company.

The role of the shareholders is limited to certain statutory requirements. However, very crucial
strategic decisions are to be taken by the shareholders in their meetings.

THE BOARD OF DIRECTORS AND STRATEGIC MANAGEMENT

Board of directors represents the shareholders of the company. Mostly, the directors are elected
by the shareholders and they in turn elect the Managing Director. The ultimate authority of the Joint Stock
Company lies with the board of directors.
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Maritoni Medalla, MBA-HTM
Strategic Responsibilities of Board of Directors

• Formulation of Mission, Objectives and Policies: Board of directors must take the long run view
and have long run perspective for the company. The board formulates, reviews and reformulates
the company’s mission, objectives and policies which form the basis for strategy formulation and
implementation.
• Designing Organizational Structure: The board designs the structure of the organization based
on the objectives, policies, environmental factors, degree of competition, role of quality,
expectations of employees, etc.
• Selection of Top Executives: The board should assume the responsibility of screening and
selecting the top executives who can formulate and implement the strategies. Senior/top
executives are key personnel in the process of strategy implementation.
• Financial Sanctions: The important financial decisions like sanctioning of finances to various
projects, reserves, distribution of profit to shareholders and repayment of loans and advances are
taken by the board. Further, the board reviews the financial performance of the company from
time to time and reformulates the financial policies.
• Link between the Company and External Environment: The board acts as a vital and continuous
link between the company and external environment like government, other companies, social
and economic institutions, etc.
• Legal Functions: The board of directors also performs certain legal functions required like criminal
liabilities.

CHIEF OF THE FAMILY OPERATED FIRM AND STRATEGIC MANAGEMENT

A family operated firm is a business whose major ownership, management and control is by a
family and most of the key executives are family members. The chief of the family is the main strategist.
The chief strategist of the family must consider the preferences of the family members who are active in
the management of the firm and/or family. Normally, the family members render full support to the chief
and do not interfere in normal activities of the business. Therefore, the family chief formulates the
strategies like entrepreneurs. Women are also entering family businesses, in recent times. The chief of
the business takes the strategic decision by involving other members of the family in the process. In fact,
he/she encourages and develops other members for strategic management.

The family operating businesses will also have certain limitations in expanding the business into a
large one, as in entrepreneur’s business, though it may not be of the same magnitude. Hence, the chief
of the family business should also consider the limitations while formulating expansion and diversification
strategies.

CORPORATE-LEVEL PLANNERS AND STRATEGIC MANAGEMENT

Corporate level planners are the supporting staff to the strategists. The large business firms
provide the planning staff to their chief executives who are busy with their prime responsibilities. The
planners are specialist staff with skills in strategic management techniques, process, analysis, etc. In
addition, the planning staff are also trained in various strategic management techniques.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
SENIOR MANAGERS AND STRATEGIC MANAGEMENT

Senior managers include second line managers at the corporate office, divisional office, zonal
office, SBUs functional heads, etc. These managers also play due role in strategic management process.
Most companies form committees for strategy formulation, implementation and evaluation. The
committees are constituted with the senior managers as members.

The senior managers perform various functions of strategic management like environmental
scanning, finding out business opportunities, formulation of alternative strategies, performing SWOT
analysis, examining the strategies, participating in the decision-making process along with other members
of the committees.

MIDDLE-LEVEL MANAGERS AND STRATEGIC MANAGEMENT

Middle level managers include immediate subordinates to the heads of various functional
managers like production manager, marketing manager, finance manager and human resource manager.
These managers mostly are executives and therefore, they mostly participate actively in implementation
of functional strategies. However, they help the functional heads in formulating functional strategies like
production strategy and marketing strategy. They collect the data and information, scan the relevant
environment, identify the opportunities, develop the alternative strategies, perform SWOT analysis
relating to functional strategies and participate in strategic decision-making process along with the
functional head. These middle-level managers get the required on-the-job training to become functional
strategists in the future. Thus, they perform the job of strategy implementation, learn the skill for the
future strategist for the organization and help the functional head in strategic management.

LOWER-LEVEL EXECUTIVES AND STRATEGIC MANAGEMENT

Lower-level executives are the junior managers or managers at the bottom level of the managerial
hierarchy. These managers normally take routine decisions which are just repetitive. As far as strategic
decisions are concerned, lower-level executives mostly play the role of corporate planning staff. They
collect data and information, classify them, tabulate them and present them to the middle-level
executives. They also play their role in strategy implementation. They implement the orders of the middle-
level executives and mostly perform the work at grass-root level to supervise the work performed by their
subordinates. However, they can offer new ideas and suggestions to the top management regarding
business opportunities. They also communicate the new concepts of strategic management to the middle-
level management that they have learned in their business schools in the recent past. This process allows
the company to share the ideas of the young blood and the lower-level executives get the opportunity of
learning practical issues of strategic management and equip themselves with talents necessary to
formulate and implement strategies.

III. STRATEGIC DECISION-MAKING

Managers in the business world often fail to make a decision at the right time and allow the
opportunities to be grabbed by the competitors and the problems remain or magnify and culminate into
a crisis. Decisions should be taken at the right time and implemented after problems have been thoroughly
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Business Policy and Strategy
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analyzed. Decision-making means to come to a conclusion and implement it. Decision-making is defined
as “the selection based on some criteria of one behavior alternative from two or more possible
alternatives.” The need for decision-making arises only when there are two or more alternative solutions
for a problem.

Values and Alternatives: To select one solution from the available alternatives, each alternative
should be evaluated in terms of probable outcomes in comparison with other alternative solutions. The
comparison should be based on values in terms of financial, social, psychological, technological and
political. These values are often conflicting with each other and make the decision-making process a
critical one. Concentrating on the important facets of the problem will help in reducing the conflict.
However, taking strategic decisions is much more complicated task.

Drivers of Success in Strategic Decision-Making

Sides and Associates has identified six drivers for success in strategic decision making. These six
drivers are: strategic context, leadership, roles, process, tools and technology and management and
controls. Strategic context deals with strategic priorities, consistent criteria, risk profile, stakeholders’
priorities, and organizational goals.

Leadership includes senior executives’ role in providing freedom to junior managers in decision
making, input for decision-making and supplying adequate and right information at the right time. In
addition, democratic and participative styles of leaders enhance decision-making culture in the company.
Roles include collaborative, challenging and contributory roles of the individuals in committee and
team/group decision-making. Process includes open versus closed communication as well as wider
participation versus limited participation in decision-making. Strategy to be effective should be open
communication and wider participation with the inbuilt devil advocacy in the process. Tools and
technology include cross-functional teams, quantitative techniques, modelling and institutional learning
systems. Management and controls should include the measures that contribute to the enhancement of
output as well as reducing the input requirement. These measures enhance the efficiency and profitability
that contributes to the organizational goals.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
TYPES OF DECISION

Decisions are classified into routine and strategic or programmed and non-programmed
decisions. Routine or programmed decisions are taken by an established or systematic procedure. The
decision-maker, in general, knows the situation in routine or programmable decisions. Managerial
decisions covered by policies, procedures and rules are taken by following established guidelines.

Strategic or non-programmed decisions have little or no precedent. They are relatively

unstructured and generally require a more creative approach. The decision-maker must develop a
procedure to be followed. Generally, it is difficult to make non-programmed decisions compared to
programmed decisions.

APPROACHES TO STRATEGIC DECISION-MAKING

Different theories have suggested different approaches of decision-making. These approaches are
discussed hereunder:

1. The Intuitive-Emotional Approach

Decision-maker takes decisions based on intuition, which is characterized using hunches,
feelings or the ‘gut-feeling’ of the decision-maker. Decision-maker who makes decisions based on
intuition, practices management exclusively as an art. This decision-maker prefers habit or
experience relative thinking, and instincts using the unconscious cognitive process. The decision-
maker considers several alternatives into consideration, but simultaneously jumps one step in
analysis and search for another and back again.
2. The Rational-Analytical Approach
In the rational-analytical approach, the decision-maker is intelligent and rational. The
decisionmaker makes the choice in full awareness of all available feasible alternatives to maximize
advantages. The decision-maker considers all alternatives as well as consequences of all possible
choices, orders these consequences in the light of a fixed scale of preferences, and chooses the
alternative that procures the maximum gain. The rational approval to decision-making includes
the following steps:
• Recognize the need for a decision
• Establish, rank and weight criteria
• Gather available information and data
• Identify possible alternatives
• Evaluate each alternative with respect to all the criteria and
• Select the best alternative.
3. A Satisfying Approach
There are limits to human rationality. Therefore, an individual must take decisions based
on limited and incomplete knowledge. In view of this, the individual decision-maker cannot
optimize but only satisfy.
Optimizing means choosing the best possible alternative. Satisfy means choosing the first
alternative that meets the decision-maker’s minimum standard of satisfaction. If the decision-
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Business Policy and Strategy
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maker is satisfied that an acceptable alternative has been found, it is selected otherwise, the
decision-maker searches for an additional alternative.
4. Political-Behavioral Approach
Normally, decisions made by organizations affect a variety of people and organizations.
Hence, another view suggests that the corporations must consider all the people and
organizations in making decisions. Corporations interact with a variety of stakeholders as the
corporation and its stakeholders are mutually dependent on each other.
The employees exchange their human resources for fair salaries, benefits and harmonious
industrial and human relations. Customers exchange their money for qualitative products and
courteous services. Shareholders exchange their money for high rate of dividend and safety of
their capital. Government provides security and protection and in turn expects payment of taxes
regularly. Financial institutions exchange their finance for high rate of interest, security of
principal amount and regular payment of interest. Suppliers of inputs expect fair terms of trade
and continuous business. Competitors exchange information through chamber of commerce,
trade and industry for mutual existence and development. The dealers expect continuous
business. Thus, a stakeholder is an individual or organization who can affect or is affected by the
decision-making and achievement of organizational purpose and objective.

PROCESS OF STRATEGIC DECISION-MAKING

Though, we have studied different approaches to strategic decision-making, the research suggests that
the process of decision-making which takes place in organizations and give rise to strategic decisions
possess the following five steps in the process:

1. Problem Awareness

Mostly individual employees identify the problems in various areas. Individuals when they get a ‘gut
feeling’ that something is wrong, identify the problem. The awareness of a strategic problem mostly
occurs to employees at grass-root level like salespeople, machine operators, finance assistants, human
resource assistants, etc. This awareness is likely to develop through a period of ‘incubations’ in which
managers sense various stimuli that confirm and define a developing picture of a problem. Norburn and
Grinyer call these stimuli as ‘signals’ or ‘ear twitchers’ and are of three types.

a. Internal performance measurements like level of turnover or profit performance.

b. Customer reaction particularly to the quality and price of the products and/or services.
c. Changes in the environment, particularly in terms of competitive action, technological change and
economic conditions.

These three factors together provide a picture of the deviation of an organization’s circumstances
from the planned or expected one. This can be the deviation from a normal trading pattern.

The accumulation of stimuli will clearly indicate the existence of the problem in the organization.
This ‘triggering point,’ will soon be highlighted by the formal information system in the form of decline in
sales, profit, and increase in the rejection level in the production department.
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Business Policy and Strategy
Maritoni Medalla, MBA-HTM
Successful business performance depends upon the ability of management in sensing its
environment. Therefore, managers should respond when the problem is identified by the individual
employees at the bottom level.

2. Problem Diagnosis

After the individual employees are aware of the problem and it is passed onto the managers,
managers will gather the information and define the problem. Information, may be gathered in the
following ways:

• Information may be explored to determine the facts of the problem in detail. Such information
may be gathered on a verbal and informal basis.
• Rationalize the information and stimuli relevant to the problem so as to clarify the situation.
• Act diplomatically to establish peer groups or political support for individual views of the problem.

Try to define the problem through debates and discussions and get organizational view or consensus
on the problem to be solved. The problem, then may take a clear shape by interweaving managerial
experience of the executives and political process in the organizations. Some executives may not accept
to proceed ahead or define the problem and ask for additional information or the triggering of a different
problem owing to different managerial experience and different views in right of social and political
process. In such a situation, the process reverts to the stage of triggering.

3. The Development of Solutions

After the problem is diagnosed clearly, the tendency of managers is that of searching for readymade
solutions. They do this process:

• through memory search in which the managers seek for known, existing or attempted solutions,
or
• passive search which entails waiting for possible solutions to be offered. If the managers fail in
these two searches, they search for their own past experiences and other managers. If they fail
to find a solution even through this method, they attempt to designing solutions.

They start designing or developing solutions through a vague idea, gradually improve it, refine it
by recycling it through selection routes back into problem identification or through further searches. This
process of developing solutions takes place through discussions, data analysis, debates, consultations and
brain storming sessions and by sharing management wisdom and experience. Data warehouses provide
required data and information for the development of solutions. This can take place both in the form of
structured and unstructured team works. The solutions once developed are to be refined until they are
developed to the stage of perfection within the available human and other resources of the organization.

4. The Selection of a Solution

After the alternative solutions are developed, the solutions must be formally evaluated based on their
inherent strengths and weaknesses and based on the environmental threats and opportunities for
implementation. These solutions are to be ranked based on their weights in terms of strengths and
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opportunities after eliminating the non-viable solutions in view of their weaknesses and environmental
threats for implementation.

After the formal evaluation and ranking is completed, the managers tend to re-evaluate the solutions
based on the managerial judgement followed by political bargaining as the formal evaluation is not the
predominant criterion for assessing the feasibility in practice. Therefore, the techniques for evaluation of
solutions also include social and political process. Quinn suggests that successful managers actively adopt
consultation/bargaining process in order to challenge prevailing strategic inclinations and generate
information from other parts of the organization. The solutions may also be referred to the senior level
to seek authorization. David Hickson and his colleagues in their study identified three broad types of
decision-making processes. They are:

• Sporadic processes characterized by many delays and impediments, many sources of influence
and information on decision, and therefore, protracted personal interactions and informal
negotiation. This type of process exists mostly in public sector organizations.
• Fluid processes in which there are fewer delays and sources of influence, and more formal
channels of communication which takes rather less time.
• Constricted processes in which information sources are more readily available and decisions can
be taken within groups or by individuals without extensive reference to others in the organization.
This might be the case in a business with a dominant chief executive or where there is an issue
which relates primarily to one part of an organization.

The managers should keep in mind the various processes discussed above while selecting the
solution for implementation. If the managers fail to arrive at a consensus, the process may be recycled to
search for new design.

5. Implementation of the Decision

Implementation of the selected solution is a part of the decision-making process as the process may
be required to be recycled due to impediments in the process of implementation. The managers should
secure the support of the top management for allocation of resources, time, etc., regarding the
implementation of the decision. A detailed program of action specifying the minute details of action,
people who will execute it, when it will be implemented, who will provide all necessary resources, how it
will be implemented and who will co-ordinate the work, is needed. Employees concerned will be
entrusted with the work and relevant information should be fed to them beforehand. The managers
should also ensure for getting feedback about the progress of implementation. If the decision cannot be
implemented due to major hurdles in the implementation process, the process may be recycle d for the
possible modification.