Business policy and strategic

Management

Daniel Tadesse Tulu(Asst. professor)

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course outline
Chapter 1: Introduction
Chapter 2: Strategic Analysis and
choice(strategy formulation)
Chapter 3: Strategic Implementation
Chapter 4: Monitoring and Evaluation
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 What is BP and SM?
• What is Business Policy?
Business : “ is an exchange of commodities
and services for increasing utilities.”
Policy : defined as "the mode of thought
and the principles underlying the activities of
an organization or an institution." Policies are
plans in they are general statements of
principles which guide the thinking,
decision making and action in an
organization.

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 What is BP and SM?
Business + policy: is a principle or a group
of related principles, along with their
consequent rule (s) of action that provide
for the successful achievement of business
objectives.
Accordingly, a policy contains both a
"principle" and a "rule of action." Both
should be there for the maximum
effectiveness of a policy.

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 What is BP and SM?
Strategic Management
• Deals with strategic decisions that decide the long-
term health of an enterprise.
• It is a comprehensive plan of action designed to
meet certain specific goals.
Business policy
• It offers guidelines for managers to take
appropriate decisions.

Action plan-strategy Action principle-policy

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• “Without Business Policy and Strategy, an
organisation is like a ship without rudder,
going around in circles. It’s like a tramp;
who has no place to go” – Joel Ross and
Michael Kami.

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Chapter one

Introduction

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 Term Definitions
• In ancient Greek, ‘stratos’ was the term for the
army and so in military terms, ‘strategy’
referred to ‘the act of the general’.

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 Term Definition

• Hofer and Schendel define it as “the

mediating force or ‘match’ between the
organization and the environment.”
(Hofer and Schendel 1979)

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 Term Definition

• Alfred Chandler Jr. suggests: “the 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 for
carrying out these goals”. Chandler (1962)
• (Alfred Chandler Jr. is one of the most famous
researchers in strategy)

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 Term Definition
• Porter relates strategy to the success or failure of a
company “obtaining a competitive position or series
of competitive positions that lead to superior and
sustainable financial performance”. Michael E Porter
(1991)

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 Aspects Of Strategy
Four important aspects of Strategy are:
1. Long Term Objectives: It emphasises on long term
growth and development.
2. Competitive Advantages: The external environment is
continuously monitored & Strategy is made to have the
firm a continuous Competitive Advantage.
3. Vector: is a Direction with Force. Series of actions are
to be taken & they should have same direction for
whole organisation.
4. Synergy: Once a series of decisions are taken to
accomplish the objectives in same direction, there will
be synergy. Synergy can happen due to Competitive
Advantages and Growth Vector. 12
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 Need for Strategy
There is a need in modern times for strategies;

* To achieve agreed goals and objectives,

* To give a strong sense of purpose and direction
* To gain competitive edge over rival organizations
* To cope with recent technological and social changes

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 Three schools of Strategy

I. The Planning School

II. The Positioning School
III.The Resource Based School

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 The ‘planning’ school
Andrews, 1971, Ansoff, 1965
• Achieves a ‘fit’ between the organizational strategy and
the environment in which it operates.
• Requires detailed and inflexible planning not suitable in
turbulent markets.
• Uses ‘Product Life Cycle’ and other marketing theories
• Based on past trends, forecasts and stable structures and
environments e.g. mature industries, public sector
• Uses a very bureaucratic and rational process

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 The ‘positional’ school
• Focuses on a rational, analytical approach of making
strategy
• Attempts to place the organization and its products
in a favorable market or environment.
• Based on performance measurement and decision
making tools.
• Emphasizes competitive advantage

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 The ‘resource based’ school
Robert Grant 1998, Jay Barney 1991
• Looks to the internal environment instead of the
market
• Incorporates the ‘core competence’ approach
• Based on an ‘inside-out’ approach suggesting that
the competitive advantage of an organization is
based on its own distinctive resources, capabilities
and competences.

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 Levels of strategy
Most academics classify strategies into three
levels:
1. Corporate
2. Business
3. Functional/Operational

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 Different Levels of Strategy
Levels Structure Strategy

Corporate Corporate Office

Corporate Level

SBU SBU - A SBU - B SBU - C Business level

Functional
Finance Marketing Operations Functional Level

Personnel Information 19
 Corporate strategy
what business are we in, or hope to be in?
what business or businesses the firm should
be in?

• It relates to the future formula and structure

of the company, and affects the rationale of
the company and the business in which it
intends to compete.

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 Business Strategy
• Competitive or business strategy – Strategic
Business Units (SBUs) are a part of an organization
for which there is a distinct external market for
goods or services how each business attempts to
achieve its mission within its chosen area of
activity.

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Operational or functional strategies

• Operational or functional strategies –

departmental level
• – accounting, HR, manufacturing, marketing
• – how the different functions of the business
support the corporate and business strategies.
• They are concerned with how the various
functions of the organization contribute to the
achievement of strategy.

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 The hierarchy of process
• The complex nature of many large organizations
has led to the splitting of strategies into inter-
related levels comprising the hierarchy of
process:

• A sequence of developing plans that move from

general to specific and intent to action would
create several levels of planning, which could be
illustrated in the triangle above.

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The hierarchy of process---read for
further detail

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 Evolution of Business Policy as discipline.
undergone four Paradigms

Paradigm One: Ad-hoc Policy – making.

• 1900 -1930: Era of Mass Production – Maximising output,
Normally a Single Product, Standardised and low cost
product, catering to unique set of customers servicing limited
geographical area – Informal control and co-ordination.

• The Strategic planning was centred on maximising output.

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 Evolution of Business Policy
Paradigm Two – Integrated Policy Formulation.
• 1930 - 1940: Changes in Technology, Turbulence in
Political environment, Emergence of new industries,
Demand for novelty products and others demands
integrating all functional areas and framing policies
to guide managerial actions.
Paradigm Three – The Concept of Strategy.
• 1940 - 1960: Planned policy became irrelevant due to
increasingly complex and accelerating changes. Firms
had to anticipate environmental changes. A strategy
needed to be formed with critical look at basic
concept of Business and its relationship to the
existing environment.
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 Paradigm Four – The Strategic Management.
1980 & onwards: The focus of Strategic Management is on
the strategic process of business firms and
responsibilities of general management.
• Everything out side the four walls is changing rapidly
and this phenomenon is called as “Discontinuity” by Mr.
Peter Drucker.
• Managing the External & Internal environment becomes
crucial function.
• Strategic Planning is required to be done to endow the
enterprise with certain fundamental competencies /
distinctive strengths to withstand unexpected
environmental changes.
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Chapter one completed

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