Business policy and Strategic management

3rd & 5th Semester MBA

What is the purpose of policies and strategies?

Policies and standards ensure that processes, procedures and deliverables are consistent and meet the needs of the business, while complying with current legislation. Policies should be clearly communicated through all levels of an organisation detailing who is responsible for each policy and what onus that places on individuals employed by the organisation.

Introduction

Why Business policy & strategic management? It lends a Methodology and framework Provide route map to a firm Ensure speedy decision & direction Hedge against uncertainty To understand the external trends in advance To Ensure the best utilization of resources

What is Strategy?

A well thought out systematic plan of action to defend and to defeat competitors. Emergent Strategy ?

Strategic management (SM)

Originated in 1950s and again revived after 1990s. S.M is defined as the art and science of formulation, implementing and evaluating cross-functional decisions that enable an organization to achieve its objective.

Key terms in Strategic management

Competitive advantage & Core competency Vision & Mission statement External opportunities and threats Internal strength and weaknesses Long term objectives Annual Objectives Strategies Strategists Policies

Advantages of Strategic management

Allows for identification, Prioritization and Exploration of opportunities. Provide an objective view of management problems Minimize the effect of adverse condition Allow effective allocation of resources Encourages forward thinking Gives degree of discipline and formality to the management of a business. Framework for internal communication.

Stages of strategic management

Formulation Implementation Evaluation

STRATEGY

Strategy refers to the determination of the purpose and basic long term objectives of an enterprise Involves adoption of different courses of action, with proper allocation of resources. Strategy is a means to achieve an organization's missions and objectives.

Policy

Policies are general statements that guide managers' thought process in decision making. In simple terms, policies act as guidelines; enabling organizations to achieve their goals

Nature and Purpose of Strategies and Policies

Direction Framework for plans Need for operational planning All perspective

Level of strategy

Corporate Business Functional

Corporate

Business1

Business 2

Business3

F1

F2

F3

F4

Corporate level strategy

Formulated at the top-level, corporate. Ideal for those organizations having more than one business unit. Two approaches in the formulation of strategy are Value-based approach: Value-based approach takes into account the individual's beliefs and helps to do business ethically. Corporate portfolio approach: The top management evaluates business units on the basis of marketplace and organizational strategy

Business level strategy

Business strategy focuses on a firm's competitiveness in the marketplace. Developed by the heads of respective departments, and approved by the top management; These strategies are designed in response to the changing environment and competitive conditions.

Functional level strategy

Functional strategies are designed to emphasize functional competencies so that firms can gain the competitive advantage. These strategies are designed and developed by the functional heads, and are approved by the top management.

Strategic Management

The process of developing a game plan to guide a company as it strives to accomplish its vision, mission, goals, and objectives and to keep it from straying off course. Give owners a blue print for matching their companies strengths and weaknesses to the opportunities and threats in the environment.

Competitive Advantage

The aggregation of factors that sets a small business apart from its competitors and gives it a unique image in the market. Every small firms must establish a plan for creating a unique image in the minds of its potential customers

Developing a Strategic Plan

Small companies have a variety of natural advantages over their larger competitors fewer product lines, a better-defined customer base and a specific geographic market area. Small business owners usually are in close contact with their customers, giving them valuable knowledge on how to best serve their needs and wants. Small businesses should find that strategic management comes more naturally to them than to larger companies.

Strategic management
Strategic Management can increase a small firms effectiveness, but owners first must have a procedure designed to meet their needs and their businesss special characteristics. Because of their size and their particular characteristics resource poverty, a flexible managerial style, an informal organizational structure, and adaptability to change small businesses need a different approach to the strategic management process.

The strategic management procedure for a small business should include the following features: Use a relatively short planning horizon two years or less for most small companies. Be in formal and not overly structured; a shirtsleeve approach is ideal. Encourage the participation of employees and outside parties to improve the reliability and creativity of the resulting plan. Focus on the customer. Do not begin with setting objectives because extensive objective setting early on may interfere with the creative process of strategic management. Focus on strategic thinking, not just planning, by linking long-range goals to day-to-day operations. Strategic thinking encourages creativity, innovation, and employee involvement in the entire process.

THE STRATEGIC MANAGEMENT PROCESS

Step 1: Develop a Clear Vision and Translate It into a Meaningful Mission Statement Step 2: Define the Firms Core Competencies and target Market Step 3: Assess the Companys Strengths and Weaknesses Step 4: Scan the Environment for Significant Opportunities and Threats Step 5: Identify the Key Factors for Success in the Business Step 6. Analyze the Competition Step 7. Create Company Goals and Objectives Step 8: Formulate Strategic Options and Select the Appropriate Strategies

Step 1: Develop a Clear Vision and Translate It into a Meaningful Mission Statement

VISION

The purpose is to focus everyones attention on the same target and to inspire them to reach it. It touches everyone associated with the company employees, investors, lenders, customers, and the community. It is an expression of what the owner stands for and believes in. It is the result of an entrepreneurs dream of something that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see.

Vision
A clearly defined vision helps a company in three ways:
Vision provides direction. Entrepreneurs who spell out the vision for their company focus everyones attention on the future and determine the path the business will take to get there. Vision determines decisions. The vision influences the decisions, no matter how big or how small, that owners, managers, and employees make every day in a business. This influence can be positive or negative, depending on how well defined the vision is. Vision motivates people. A clear vision excites and ignites people to action. People want work for a company that sets its sight high.

*Vision is based on entrepreneurs values; truly visionary entrepreneurs see their companies primary purpose as more than just making money *The best way to put values into action is to create a written mission statement that communicates those values to everyone the company touches.

MISION / MISSION STATEMENT

An enduring declaration of a companys purpose that addresses the first question of any business venture: What business am I in? As an enduring declaration of a companys purpose, a mission statement is the mechanism for making it clear to everyone the company touches why we are here and where we are going Without concise, meaningful mission statement, a small business risks wandering aimlessly in the marketplace, with no idea of where to go or how to get there. The mission statement sets the tone for the entire company

Elements of a Mission Statement

What are the basic beliefs and values of the organization? What do we stand for? Who are the companys target customers? What are our basic products and services? What customer needs and wants do they satisfy? Why should customers do business with us rather than the competitor down the street (or across the town, on the other coast, on the other side of the globe)? What constitutes value to our customers? How can we offer them better value? What is our competitive advantage? What is it source? In which markets (or market segment) will we choose to compete? Who are the key stakeholders in our company and what effect do they have on it? *To be effective, a mission statement must become a natural part of the organization, embodied in the minds, habits, attitudes and decisions of everyone in the company every day.

COMPETITIVE ADVANTAGE
A company may have a powerful competitive advantage, but it is wasted unless the owner has communicated that advantage to workers, who in turn, are working hard to communicate it to customers and potential customers and customers are recommending the company to friends because they understand the benefits they are getting from it that they cannot get elsewhere

Tips for Writing a Powerful Mission statement

Keep it short. Keep it simple. Get everyone involved. Keep it current. Make sure your mission statement reflects the values and beliefs you hold dear. Make sure your mission statement includes values that are worthy of your employees best efforts. Make sure your mission statement reflects a concern for the future. Keep the tone of the mission statement positive and upbeat. Consider using your mission statement to lay an ethical foundation for your company. Look at other companies mission statements to generate ideas for your own. Make sure that your mission statement is appropriate for your companys culture. Use it.

EXAMPLE
Mission of Unilever: The mission of our company, as William Hasketh Lever saw it, is to make cleanliness commonplace, to lessen work for women, to foster health, and to contribute to personal attractiveness that life may be more enjoyable for the people who use our products.

Mission of Mckinsey & Co: To help business corporation and governments to be more successful. Mission of Cadbury India: To attain leadership position in the confectionary market and achieve a strong presence in the food drinks sector.

Corporate Planning Models

Models identify and generalize underlying patterns in real-world events. Several have stood the test of time as corporate planning evolved into strategic management over the past several decades:

The Ansoff Matrix Porter's "five forces" and generic strategies Prahalad and Hamel's core competencies Other Models like Value chain analysis is used to evaluate the unrealized competitive advantage latent in the firm's various operations--such as logistics, manufacturing, marketing and sales. Other models analyze the strategic fit between a firm's internal resources and its external environment. SWOT analysis (strength, weakness, opportunities, threats) PEST analysis

Ansoff's Matrix

A business grows by pursing one of four basic strategies. It can

Market Penetration:lower prices or ramp up advertising to win over competitors' customers. Market Development:It may seek new markets for its products. Product development: New products are introduced in existing markets. Diversification strategy by developing new products to

The Five Forces

Every firm competes in an industry, and every industry has a structure. A firm prospers in Porter's model when it exploits whatever structural advantages it has. How it does this largely depends on the intensity of intra-industry rivalry; the extent of structural barriers new entrants face; potential product substitutes undercutting industry sales; and the firm's bargaining power vis--vis its suppliers and buyers.

Porter's Generic Strategies

Businesses, Porter compete along two basic dimensions--price and product features. Those with the lowest cost structure or a product rivals can't duplicate earn the higher profits key to a sustainable competitive advantage. Leadership Differentiation Focus strategy. Cheaper raw materials and labor, large economies of scale and efficient production reduce costs and lower its price. Unique, value-added products allow firms to charge a premium price. Firms that devote all their resources to serving a small, specialized market have fewer competitors and a

Diagram of Porter's 5 Forces

Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry

BARRIERS TO ENTRY
Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products

THREAT OF SUBSTITUTES
-Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes

BUYER POWER
Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives

DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

Core Competencies

Properly leveraged, knowledge and expertise can also give a firm a competitive advantage. The main ideas about Core Competencies were developed by C K Prahalad and G Hamel through a series of articles in the Harvard Business Review followed by a best-selling book - Competing for the Future. Their central idea was that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth. Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firms competencies: 1. Value : Does it provide competitive advantage? 2. Rareness: Do no other competitors possess it? 3. Imitability: Is it costly for others to imitate? 4. Organization: Is the firm organized to exploit the resource? If the answer to these questions is yes for a particular competency, it is considered to be a strength and thus a distinctive competency.

What does the Core Competence Achieve

Provides potential access to a wide variety of markets
The key core competencies enable the creation of new products and services.
Example: Why has HDFC established such a strong leadership in supplying financial services Core Competencies that enable HDFC to enter apparently different markets: - Clear distinctive brand proposition that focuses solely on a closely-defined customer group - Leading direct marketing skills - database management; direct-mailing campaigns; call centre sales conversion - Skills in customer relationship management

Makes a significant contribution to the perceived customer benefits of the end product
Core competencies are the skills that enable a business to deliver afundamental customer benefit in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one product or service than another?" "What is a customer actually paying for?

Difficult for competitors to imitate

A core competence should be "competitively unique": In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as "core", a competence should be something that other competitors wish they had within their own business.

Value chain analysis

Value chain analysis is used to evaluate the unrealized competitive advantage latent in the firm's various operations--such as logistics, manufacturing, marketing and sales. Other models analyze the strategic fit between a firm's internal resources and its external environment.

Other Models

SWOT analysis (strength, weakness, opportunities, threats) examines a firm's strengths and weaknesses as a business in light of the real-world opportunities and threats--competitive, economic, regulatory--to which it must respond. PEST analysis focuses on the latter, examining the likely impact of political, economic, social and technological trends.

Environmental Scan / External Analysis / Macro environment | P.E.S.T. \ Microenvironment \ Internal Analysis

STEEP Analysis

The scanning of Sociocultural, Technological, Economic, Ecological, and Politicallegal environmental forces. (It may also be called PESTEL Analysis for Political, Economic, Sociocultural, Technological, Ecological, and Legal forces.)

What is the difference between a policy and a strategy?

A strategy is devised at the relevant level of management and is a long-term plan of change and improvement for an organisation.

STRATEGY

POLICY

A policy is a document written to structure and outline the strategy to those that it affects and to those who must implement it.

Key Issues in Strategic Planning

Not being clear about the planning need Not being aware of the issues and constraints that will affect the planning process and output Approach too sophisticated or not appropriate to deliver the required answers The financial forecast is all that matters, with the thinking behind those forecasts being ignored or not challenged/considered Process not challenging people to think or act differently Insufficient external focus: environment and/or competitors Lack of real focus on (new) opportunities for growth Poor expertise at local level More tactical/operational than strategic focus

What is the purpose of policies and strategies?

Information is a resource, but one that has completely different properties from other resources such as raw materials or stock. For one thing, it is not depleted when it used. For another, it is difficult and usually undesirable to keep exclusive ownership of information. It is usually regarded as a shared resource within a company. The challenge for management is to formulate an information management policy that will help them manage computing resources in an effective and profitable way, and maximise the benefits of information.

What strategic elements should a policy contain?

STRATEGIC PLANNING ISSUES

Consistency with business priorities Hardware and software choices

Centralisation or decentralisation?

Different user needs

STRATEGIC PLANNING ISSUES

Consistency with business priorities

A companys information system strategy should be linked to its business plan. This does not always happen. One way to ensure that is is linked it to use the critical success factors (CSF) approach. This means that senior managers have to identify the companys primary goals and what things must go right for the company to succeed. They then have to identify measures of performance for each of the CSFs to make sure the information systems are in place to collect and use this information.

STRATEGIC PLANNING ISSUES

Example of CSF from the Learning and Skills Development Agency

Consistency with business priorities

From their report on Key Skills Support

STRATEGIC PLANNING ISSUES

A part of the measures of performance section for CSF 1 Each section is further broken down into review questions for checking the implementation of the policy

Consistency with business priorities

STRATEGIC PLANNING ISSUES

Centralised Information Systems Department

Centralisation or decentralisation?

Other Department

Other Department In a centralised system, the ISD has responsibility for planning and control of processing, maintenance of hardware and software and development of new computerised information systems.

Other Department

STRATEGIC PLANNING ISSUES

Centralised Information Systems Department

Centralisation or decentralisation?

Other Department

Other Department This has the advantage of providing a central pool of expertise and better control over what hardware and software is purchased.

Other Department

STRATEGIC PLANNING ISSUES

Centralised Information Systems Department

Centralisation or decentralisation?

Other Department

Other Department Arrows away from the ISD show the flow of information and equipment towards all other departments from the central point.

Other Department

STRATEGIC PLANNING ISSUES

Centralised Information Systems Department

Centralisation or decentralisation?

Other Department

Other Department Arrows towards the ISD show the flow of requests for information and equipment from all other departments to the central point.

Other Department

STRATEGIC PLANNING ISSUES

Other Department

Centralisation or decentralisation?

Other Department

In a decentralised system, there is no ISD, so responsibility for planning and control of processing, maintenance of hardware and software and development of new computerised information systems falls to each individual department.

Other Department

STRATEGIC PLANNING ISSUES

Other Department

Centralisation or decentralisation?

Other Department

Other Department Arrows between each department show possible requests for information and equipment sharing / advice. The trend in large organisations is towards this type of model.

STRATEGIC PLANNING ISSUES

Other Department

Centralisation or decentralisation?

Other Department

The advantages of this system are that it allows users in the individual departments to develop their own applications and it lessens the dependence on a central ISD. It may also be faster to sort out problems.

Other Department

STRATEGIC PLANNING ISSUES

Other Department

Centralisation or decentralisation?

Other Department

Other Department MANAGEMENT Management could monitor the information systems situation centrally, agreeing to requests for hardware / software purchases, etc.

STRATEGIC PLANNING ISSUES

A medium to large business using computers will have a huge range of different types of users, each with their own requirements. For instance, those circled in red will interact directly with the computer system itself. Others are called endusers.

Different user needs

STRATEGIC PLANNING ISSUES

Different user needs

Managers Information workers Production workers

Management Information Systems Knowledge Work Systems Data Processing/ Transaction Processing Systems

Users at all levels of the organisations information system (transaction, knowledge work and management support) will have different needs.

STRATEGIC PLANNING ISSUES

However, all users require that software is easy to use and has enough features to help them get their jobs done as efficiently as possible. They would also like hardware that is sufficiently powerful to run the software without frustrating delays.

Different user needs

STRATEGIC PLANNING ISSUES

Hardware and software choices

Advantages of centralised control include:

All hardware within company will be compatible and can be linked in company-wide network;
Purchasing power increased if high volume;

Better deals on maintenance contracts;

Employees will not have to learn new systems if they move to another department;

STRATEGIC PLANNING ISSUES

Hardware and software choices

Training simplified for people using the same software from many departments; Site licences can be purchased for software; Better control over unlicensed software;

Data can be exchanged more easily between similar types of computer.

Using different types of computer (PC, Mac) creates problems since most software is not cross-

STRATEGIC PLANNING ISSUES

Hardware and software choices

What are the issues with choice of hardware and software?

Upgrading issues should the whole organisation be upgraded or one department at a time? Will this cause compatibility problems?
Legacy systems old but still working reliably. Should they be replaced with new systems? Future proofing hardware and software purchases may be impossible Emulation software could work with a new system but it may not run 100% of the software.