UNIVERSITY OF PROFESSIONAL STUDIES, ACCRA DIPLOMA LEVEL 200

Business policy and Strategy 1

Facilitators; Danaa Natognmah, Sam Tuffour, Kwame FosuBoateng

Course synopsis

This course will introduce students to the relationship between strategic planning and human resource planning. Issues to be discussed include budgeting, control, business strategy and policy and appropriate organizational design with particular emphasis on the relationship of these aspects to labour power planning and human resource development. The main theoretical approaches to the study of strategy and policy will be taught and understanding of techniques used to explain policy formulation, evaluation and policy change

Week 1- Introduction
Business policy and strategy and synonymous to strategic management or strategic planning. The goal is to understand how companies gain competitive advantage. This requires companies to set out a mission, vision and corporate values for themselves. The formulation of these things will require its implementation and subsequent evaluation. Stages in strategic management;

Formulation Implementation and Evaluation

Strategic Management (SM)is the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives. Hence SM focuses of integrating the following towards achieving organizational success
Management Finance Marketing Accounting Production Research and development

Strategic Management defined

Strategic Management defined (contd)

SM could also be defined as the set of management decisions and actions that determines the long-run performance of an organization. Strategy refers to a comprehensive master plan that tells us how the organization is going to achieve its objectives Strategy=game plan=compass=road map=ploy

Strategic Management defined (contd)

What makes a decision strategic in nature; When;

It involves top level managers It affects the long term directions of the entire organization It requires the commitment of the large proportion of the firms resources It involves gaining competitive advantage It addresses changes in the business environment It focuses on building on the resources and competences

Strategic Management defined (contd)

Levels of strategy;
Corporate level Business level Functional level

The classification of decisions falling under these different levels differ among organizations but mostly influenced by size.

Strategy Formulation

Some issues considered at the formulation stage;

Identification of new business opportunities Decision of which business to abandon Allocating resources across the organization Decision of expansion into new markets Decision on mergers and acquisitions etc

Strategy Implementation

Some issues considered at the implementation stage;

Division of responsibilities/task Mobilization of employees and management Consensus building on how to achieve the goal/target set Acquisition of resources needed to implement tasks Acquisition of resources needed etc

Strategy Evaluation

Some issues considered at the evaluation stage;

Performance measurement indicators Methods of acquiring data on performance Methods of measuring performance Matching actual performance to projected performance Communicating the results to stakeholder for onward consideration for the next strategic planning period

The Strategic Management Model

The model consists of the following sequential activities;

Identification/formulation of vision, mission and objectives or the organization Assessment of the external business environment Assessment of the internal business environment Establishment of long term objectives Generate, evaluate and select appropriate strategies Implement selected strategies Measure and evaluate performance

Benefits of Strategic Management

Helps in identifying opportunities Facilitates an objective review of managerial problems Improves coordination Minimizes the influence of adverse conditions on the organization Facilitates the formulation of decisions that better support the corporate objectives Enhances effective communication Enhances effective allocation of time and resources Helps to effectively blend individual responsibilities Encourages forward thinking (pro-activeness) Encourages favourable attitudes towards change It provides discipline and formality to the management of the business

Risks of Strategic Management

Why some firms do no strategic management;

Poor appreciation of the benefits Fire fighting attitude Too expensive Time consuming Laziness Complacency with current successes Fear of failure Over-confidence Fear of the unknown Prior bad experiences Conflict of interest between top management and the organizations utmost goal

WEEK 2 &3 STRATEGY FORMULATION

Vision is the desired future state of an organization.

It is what we want to become

Vision should shared. Thus it should;

Provide commonality of interest Provide opportunities and present a challenge to employees Reduce monotony

(HINT REFER TO THE VISION STATEMENTS OF REAL COMPANIES AND DISCUSS)

STRATEGY FORMULATION (Contd)

Mission statement is an enduring statement of purpose that distinguish one business from other similar firms.
It identifies the scope of a firms operations in terms of product and market

It answers questions like;

What is our business? Why do we exist?

STRATEGY FORMULATION (Contd)

Why mission statement?

It helps in mobilizing resources It helps in setting policy guidelines It sets the company apart from other competitors in terms of product and business philosophy

Mission statement=business creed=business purpose

Benefits of a strong Mission Statement

Unanimity of purpose Sets the organizations climate and tone Helps in resource allocation Sets the focal point for the work structure Helps to recycle divergent management views

Features of a strong mission statement

It should be broad in scope Reconciles interest of diverse stakeholders Finely balanced between specificity and generality It must arouse positive feelings and emotions It must motivate readers to action It must generate a good image of the firm to outsiders Must be dynamic in nature Must provide a sense of how the company wants to grow

Hints in writing a mission statement

It should be broad It should not be too lengthy It must be inspiring It must describe the products/service provided by the firm It must reveal the corporate social responsibility philosophy of the organization It must be enduring

Business Ethics
Ethics are principles of conduct within organizations that guide decision making and behaviour. Code of business ethics provides the basis on which policies can be devised to guide daily behaviour and decisions in the work place. Examples on non-ethical action

Misleading advertisement Insider trading Tax evasions Financial malfeasance Producing sub-standard goods etc.

Business Ethics (contd)

Merely having code of ethics documented could serve as a public gimmick, set of platitudes or a window dressing act. Documented code of ethics only become effective when followed by periodic ethics workshops to sensitize people on;

its composition Essence Punishments for non-adherence

There is the need to create an ethics culture. To do so business strategies could consider an interactive fun/computer-game using ethical situations like Citicorp Managers have the responsibility of ensuring ethical leadership

Important point in implementing Business Ethics

The manager is solely responsible for how ethical the organization is

If a persons lacks character and integrity, no mater how knowledgeable, how brilliant, how successful, he ends up destroying
He destroys people (the most vital resource of the organization) He destroys the spirit of the organization (the spirit of the organization rests at the top) He destroys performance

No one should ever think of being a business strategist unless he/she is willing to have his/her character serve as the role model. Every ethics workshop should include messages from the CEO emphasizing ethical business practices and the need to report unethical behaviours

Corporate Social Responsibilities (CSR) defined

CSR refers to the duty that a corporate entity has to create wealth by using means that avoids harm and also to protect or enhance societal assets (Steiner and Steiner, 2000). A companies actions that contributes to sustainable development through the companys core/business activities, social investment and public policy debate. Principles of CSR;

Charity (organizations should give to the needy as a responsibility) Stewardship (organizations should consider the interest of all persons who are affected by decisions and policies of the company or business)

Theories of CSR
Stakeholder theory ( the society is a stakeholder to the organizations hence their needs should be met) Social contracts (every organization has a contractual obligation with society) Legitimacy theory (the society decides or grants legitimacy to the organizations i.e they allow good organizations to exist)

Arguments for/against CSR

FOR It balances corporate power with responsibility It discourages government regulations It promotes long term profits Against It lowers economic efficiency and profits It imposes unequal costs among competitors It imposes higher cots which are passed to consumers It requires social skills which businesses may lack It places responsibility on business instead on individuals

It improves business value and reputation It corrects social problems caused by businesses

Dimensions of CSR

Economic companies have a responsibility to produce goods and services that society needs Legal companies have responsibility to obey law Discretion Companies have to exhibit voluntary roles driven by social norms; i.e companies have to exhibit behaviour and ethical norms beyond what is required Ethical companies have to exhibit behaviour and ethical norms beyond what is

Making CSR profitable

Companies ask the following questions when formulating their CSR policy;
To whom should we be socially responsible? To extent should we be socially responsible towards them? What is the nature of our products and market? How much resources do we have to invest in CRS What issues constitute CSR?

Aligning CSR to Strategy

Identify the stakeholders of the company Understand the expectation of the stakeholders from the company Reconcile identified claims of the different stakeholders to the vision and strategy of the company Assign priorities to the various claims Coordinate the claims with other elements of the companies mission and plan implementing the CSR activities.

Why the heightening concern for CSR today?

Common sense approach that companies should be able to do well by doing good Resurgence of environmentalism Increasing buyer/consumer power Globalization of businesses CSRs effect on the mission statement

Implication of CSR for firms

Better risk management Gain government approval Stronger reputation Improved productivity

CSR activities confer benefits beyond enhanced reputation (Smith, 2003) CSR activities can be tools to attract, retain and develop managerial talents (Hempel &Porges, 2004) Doing good leads to making more money (Pearce & Doh, 2005)

Concluding thoughts of CSR

CSR rests on a continuum

The strategic aim of business is to earn a return on capital and if in any particular case the return in the long run is not satisfactory, then the deficiency should be corrected or the activity abandoned for a more favourable on (Sloan, 1964) A good company delivers excellent products and services and a great company does all that and strives to make the world a better place (Ford, 2003) The actions of a company to benefit society beyond the requirement of the law and the direct interests of shareholders (Pearce and Doh, 2005)

WHERE WOULD YOU PLACE YOUR COMPANY ON THE CONTINUUM?

WEEK 4 EXTERNAL ENVIRONMENTAL ANALYSIS

The external environment consists of all elements outside the domain of an organization which has/can have an influence of the competitive position of an organization The essence of conducting an external environmental analysis/audit is to develop a finite list of opportunities that could be of benefit and threats that should be avoided Thus it is not aimed at developing an exhaustive list of every factor that could influence a business rather it is aimed at identifying key variables that offer actionable responses (offensive or defensive) in strategy formulation.

Components of the External Environment

The organization
The industry (Immediate external environment)

The remote external Environment

Tools for conducting External Environmental Analysis

Immediate External Environment (Industry)

To conduct analysis in this environment, the Porters Five Forces is used

The Remote External Environment

To conduct analysis in this environment the PESTEL is used.

PORTERS FIVE FORCES [INDUSTRY ANALYSIS]

Potential development of substitutes

Bargaining Power of suppliers

Rivalry among competing firms

Bargaining power of Consumers

Potential entry of new competitors

Porters Five Forces contd

Industry competitors: Rivalry among existing competitors takes many familiar forms, including price discounting, new product introductions, advertising campaigns, and service improvements. High rivalry limits the profitability of an industry. The degree to which rivalry drives down an industry's profit potential depends, first, on the intensity with which companies compete and, second, on the basis on which they compete. New Entrants: New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry, Microsoft did when it began to offer internet browsers. Substitute: A substitute performs the same or a similar function as an industry's product by a different means. Videoconferencing is a substitute for travel. Plastic is a substitute for aluminium. E-mail is a substitute for express mail. When the threat of substitutes is high, industry profitability suffers. Substitute products or services limit an industry's profit potential by placing a ceiling on prices. If an industry does not distance itself from substitutes through product performance, marketing, or other means, it will suffer in terms of profitability - and often growth potential.

Porters Five Forces contd

Buyers: Powerful customers - the flip side of powerful suppliers can capture more value by forcing down prices, demanding better quality or more service (thereby driving up costs), and generally playing industry participants off against one another, all at the expense of industry profitability. Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reductions. Suppliers: Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants. Powerful suppliers, including suppliers of labour, can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices. Microsoft, for instance, has contributed to the erosion of profitability among personal computer makers by raising prices on operating systems. PC makers, competing fiercely for customers who can easily switch among them, have limited freedom to raise their prices accordingly.

PESTEL [Remote Environmental Analysis]

PESTEL stands for Political, Economic, Socio-cultural, Technological, Environmental, (or ecological and Legal

Political: Political factors include change in governments may be limited to home country but other , international bodies such as ECOWAS, and EU with corresponding changes in policies and priorities may have an impact the organization and how it operates. Economic: Economic factors may also be limited to the home country, but as global trade continues to grow, economic difficulties in one nation tend to have broader impact. For instance the 2008 financial crisis was as a result of USA mortgage crisis but it ended up affecting many nations including Ghana.
Socio-cultural: These are factors that arise as a result of demographic change or changes in consumer behaviour patterns, cultural norms and even religious considerations

PESTEL Contd

Technological: this is a result of the development of technology. There are two types of technological change, which are developments in IT and developments in technology specific to an industry or market. The identification of technology that provide opportunity for the growth of the organization is very critical if an organization is able to recognize the potential that earlier. Legal: It is vital to consider factors arising from changes to the law. Some legal issues may originate from the national government but others, may operate across a broader spectrum. One issue when considering the legal element of the PESTLE analysis is to recognise laws that have an impact upon the organization even though the originated from countries other than that in which the organization is based. Recent examples are the changes to international financial compliance regulations, such as the Sarbanes -Oxley Act in the USA and the Basel II Accord. Environmental (or ecological): Is about the concerns with regard to the 'green issues'. There are increasing concerns about packaging and the increase of pollution.

WEEK 5- INTERNAL ENVIRONMENTAL ANALYSIS

Aside the external forces, there are elements within the organization that can serve as a hindrance or catalyst to gaining competitive advantage. To do this kind of analysis, three tools will be considered;

SWOT Analysis Resource Based View [RBV] Value Chain Analysis [VCA]

SWOT Analysis

This is an acronym that stands for Strength, Weakness, Opportunity and Threat
Strength: The internal positive capabilities of an organization which enables it to do business easily Weakness: Internal negative aspects of the organization that will diminish the chances of success Opportunity: External factors that present strong basis for gaining competitive advantages Threat: External factors that have the potential to harm the organization

SWOT Summary
Strengths-will aid the development of the organization

Weaknesseswill undermine the development of the organization

Opportunities -available to be grasped by the organization

Threats presenting potential problems for the organization

SWOT may sometimes run the following risks; (1) risk of overemphasizing internal strengths and downplaying external threats; (2) it can be static and ignore changing circumstances; (3) it can overemphasize single strengths; (4) a strength may not necessarily be a source of competitive advantage

Resource Based View (RBV)

The resource-based view (RBV) as a basis for the competitive advantage of a firm lies primarily in the application of a bundle of valuable tangible or intangible resources at the firm's disposal to transform a short-run competitive advantage into a sustained competitive advantage It seeks to find the set of Resources (and not opportunity or threat) that are critical to attaining the sustained competitive advantage. Such critical resources then get managements prime attention Hence RBVs basis for conducting internal analysis differs from the SWOT approach

RBV contd

A critical resource should possess the following or it should be VRIN

Valuable: A resource must enable a firm to employ a valuecreating strategy, by either outperforming its competitors or reduce its own weaknesses Rare To be of value, a resource must be rare by definition. In a perfectly competitive strategic factor market for a resource, the price of the resource will be a reflection of the expected discounted future above-average returns In-imitable If a valuable resource is controlled by only one firm it could be a source of a competitive advantage Non-substitutable Even if a resource is rare, potentially valuecreating and imperfectly imitable, an equally important aspect is lack of substitutability

The VRIN characteristics mentioned are individually necessary, but not sufficient conditions for a sustained competitive advantage hence a critical resource should possess all four qualities

VCA

A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources - money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. VCA therefore analyses the internal operational chain to ascertain which part of the chain adds the most value to the end product. Its is not on findings a critical resource or SWOT but improving efficiency in the operational chain

WEEKS 6&7 Establishing Long-Term Objectives

Long-term objectives are results or targets expected from pursuing certain strategies over a long term period (beyond 2 years). Strategies are actions to be taken to accomplish long-term objectives. Nature of long-term objectives;

They should be
Quantifiable Realistic Understandable Challenging Hierarchical Obtainable Congruent with the organizations vision and strategy

Generic Strategies
These are fundamental philosophies by which organizations believe they can attain sustainable competitive advantage. The are basically three different (but not mutually exclusive) once

Low cost leadership strategy (attaining sustainable competitive advantage through offering very affordable products) Differentiation strategy (attaining sustainable competitive advantage through the offering of superior quality products beyond what is common to the market) Focus strategy (offering unique products to a selected target market whose needs have hitherto not been met. It is also called nitch marketing strategy)

Alternative Strategies for achieving Long-term objectives

There are over ten alternative strategies also called grand strategies that companies can pick from. They are;
Forward Integration (gaining ownership or increasing control over distributors or retailers Backward Integration (seeking ownership of increased control of a firms suppliers) Horizontal Integration (seeking ownership or increased control over competitors) Market Penetration (Seeking increased market share for present products or services in present markets through greater marketing efforts) Market Development (Introducing a present product or service into a new geographical area) Product Development (Seeking increased sales by improving products and services or developing new ones) Related diversification (adding new but related products/brands Unrelated diversification (adding new unrelated products, services or brands.

 Unrelated diversification (adding new unrelated products, services or brands. Joint venture (strategy that occurs when two or more companies for a temporary partnership or consortium for the purpose of capitalizing on some identified opportunity that is beyond the strength of any of the individual firms) Merger/Acquisition (A merger occurs when so firms of similar size unite to form one entity and an acquisition occurs when a larger firm purchases/acquires a smaller firm or vice-versa) Outsourcing (transferring the functional operations such as HR, marketing, accounting, payroll, customer service among others to other firms at a fee) Retrenchment/turnaround (regrouping through cost and asset reduction to reverse declining sales and profit Divestiture (Selling a division or part of an organization) Liquidation (selling all of a companys assets in parts for their tangible worth)

Alternative Strategies for achieving Long-term objectives contd Related diversification (adding new but related products/brands

All selection of any of the above strategy for a company will be

WEEK 8 ORAL PRESENTATION ON THE CASE STUDY ON YAHOO

WEEK 9 - INTERIM ASSESSMENT

WEEKS 10&11 - STRATEGY ANALYSIS AND CHOICE

This involves making subjective decisions based on objective information. It seek to determine course of action that could best enable the firm to achieve its mission and objectives. The firms present strategies, mission and objectives coupled with information resulting from the external and internal environmental audit provide the basis fir generating and evaluating feasible alternative strategies Unless a desperate situation confronts a firm, alternative strategies will likely represent those that move the firm from its present position to a desired future position. To conduct the strategic analysis, the SWOT matrix will be used. Other tools like the SPACE matrix, Boston Box and Ansoff Matrix also exists

SWOT MATRIX
Strengths

Use strategies that enables optimal use of companys strengths to capitalize on opportunities

Employ strategies that enables a firm to use its strength to avoid or reduce the impact of the external threats

o
Use strategies that improves works on the weaknesses and positions the firm in a position that enables it to take advantage of opportunities Employ defensive strategies and tactics directed towards reducing internal weaknesses and avoiding the impact of external threats on the organization

Weaknesses

The Boston growth-share Box/matrix

The Boston growth-share Box/matrix contd

The Boston growth-share Box/matrix contd

WEEK 12 - REVISION