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Business Policy
Course Coordinator: Dr. Zahid Riaz

What is strategy?

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Business Policy and Strategy

• 1911 and Harvard Business School.

• Second-year course in “business policy.”

• A course description from 1917 course.

• A “balance in accord with the underlying policies of the business as a

whole.”

• The balance and whole aspects are very important…

From Business Policy to Strategic Management

• Strong administrative traditions of the business policy

literature.
• A managerial focus to higher levels of analysis.
• The Art of War, Sun Tzu’s classic.
• Barnard (1938), Selznick (1959) and Chandler (1962),
reinforced the concept of strategy - explicitly
borrowed from the military.
• Ansoff (1965) and Andrews defined many of the
concepts.
• Strategy versus tactics.

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From Business Policy to Strategic

Management
• The Andrews (1971) model probably became the most influential
model.

• The Andrews model has been modified by Mintzberg et al. 1998.

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From Business Policy to Strategic

Management
• Criticism on business policy.

• Practitioners versus academics.

• BCG growth-share matrix (Henderson, 1973) and the Profit Impact

Market Strategies (PIMS) model (Buzzell et al., 1975).

• What is PIMS?

• These tools were developed by consultants.

From Business Policy to Strategic

Management
• A complex notion of corporate strategy could be reduced to boxes
and bubbles or regression coefficients.

• 1977 conference of Business Policy and Planning Division of the

Academy of Management.

• Renewal and revitalization of strategic management and

empirical research.

• By the 1980s the initiative had passed fully from the consultants to
various academics.

• A discipline of about 40 years old.

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Short history - Business Policy to

Strategic Management or Strategy

Value Chain and Operational

Effectiveness – Questions
1. What does a firm do?

2. What are the interrelationships between

“Operational Effectiveness” and “Strategy?

3. What is strategy?

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Value Chain and Strategy

• What are those activities?
• A company’s strategy is the coordinated set of actions that its managers take
in order to outperform the company’s competitors and achieve superior
profitability.

What is Operational
Effectiveness?
• Benchmark continuously to achieve best practice.
• Outsource aggressively to gain efficiencies.
• A few core competencies in race to stay ahead of rivals.
• Operational effectiveness means performing these activities
better— that is, faster, or with fewer inputs and defects—than
rivals/competitors.
• In the 1980s, it seemed possible to win on both cost and quality
indefinitely.
• Japanese companies were all able to grow in domestic and global
markets.
• As the gap in operational effectiveness narrows, Japanese
companies are increasingly caught in a trap of their own making.

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Operational Effectiveness and

Strategic Positioning
• What is strategic positioning?

• It attempts to achieve sustainable competitive advantage by

preserving what is distinctive about a company.

• It means performing different activities from rivals, or performing

similar activities in different ways.

• According to the new dogma, rivals can quickly copy any market
position, and competitive advantage is, at best, temporary.

• Competition – perennial gale of creative destruction.

Operational Effectiveness???
• Dangerous half-truths.

• Mutually destructive competition - hyper-

competition.

• Barriers to competition were falling due to deregulation,

digitalization and globalization.

• What is network or open organization?

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Operational Effectiveness and

Hyper-competition
• Consider the $5 billion-plus U.S. commercial-printing
industry.
• The major players— R.R. Donnelley & Sons Company,
Quebecor, World Color Press, and Big Flower Press
(currently known as Vertis Holdings, Inc.) — are
competing head to head, serving all types of customers,
offering the same array of printing technologies,
investing heavily in the same new equipment, running
their presses faster, and reducing crew sizes.
• But the resulting major productivity gains are being
captured by customers and equipment suppliers, not
retained in superior profitability for industry players.

Operational Effectiveness and

Competition
• The improved operational effectiveness is insufficient.

• The more benchmarking companies do, the more they look alike.

• The more that rivals outsource activities the more generic those
activities become.

• Competition based on operational effectiveness alone is mutually

destructive, leading to wars of attrition that can be arrested only by
limiting competition.

• McDonaldization, Disneyization and Starbuckization of the society.

Video.

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Strategy versus operational

Effectiveness
• Management tools have taken the place of strategy.

• Operational effectiveness versus strategy.

• Operational effectiveness and strategy are both essential

to superior performance.

• But they work in very different ways.

• A company can outperform rivals only if it can establish a

difference that it can preserve.

• It must deliver greater value to customers or create

comparable value at a lower cost, or do both.

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What is Strategy?
• Strategic positioning attempts to achieve sustainable
competitive advantage by preserving what is distinctive
about a company.

• Strategy means performing different activities from

rivals, or performing similar activities in different
ways.

• What is strategy? Porter’s video.

• Strategy is an integrated set of choices.

Fundamental Questions

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Strategic Fit
•A strategy must exhibit fit along three dimensions.
•External.

•Internal – activity system.

•Dynamic – contingency theory.

What is Strategy? Pedagogic

pointers

1. Business model of a firm.

2. Strategic tradeoffs.

3. Strategic fits.

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What is the business model of a

firm?

Business Model Canvas

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Strategic Tradeoffs

Strategic Trade-offs
• The first is inconsistencies in image or reputation.

• Second, and more important, trade-offs arise from

activities themselves.

• Finally, trade-offs arise from limits on internal

coordination and control.

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What do tradeoffs do?

• Trade-offs ultimately grounded Continental Lite.

• The airline lost hundreds of millions of dollars, and the
CEO lost his job.
• Continental tried to compete in two ways at once.
• In trying to be low cost on some routes and full service
on others, Continental paid an enormous straddling
penalty.
• If there were no trade-offs between the two positions,
Continental could have succeeded.

Strategic Fit and Competitive Advantage

• Strategic fits complete the
answer to the quest of strategy.
• There are three types of fit,
although they are not mutually
exclusive.
• First-order fit is simple
consistency between each
activity (function) and the
overall strategy.
• Second-order fit occurs when
activities are reinforcing.
• Third-order fit goes beyond
activity reinforcement to what
Porter calls optimization of effort
– Ikea video.

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What is strategy?
• In all three types of fit, the whole matters more than
any individual part.
• Competitive advantage grows out of the entire
system of activities.
• This eventually determines the strategy of a firm.
• The fit among activities substantially reduces cost or
increases differentiation.
• Beyond that, the competitive value of individual
activities— or the associated skills, competencies, or
resources—cannot be decoupled from the system or
the strategy.

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What is strategy?
• Can we answer this question now?

• Strategy is creating fit among a company’s

activities.
• Strategy = Strategic Positioning + Strategic trade-
offs + Strategic Fits.
• What is strategy? (Video Summary - CBS).
• Punctuated equilibrium and strategic inflection
point – strategic planning versus strategy (video).
• Short video - strategy.

Class Discussion
• Please read the article titled, “ Why do so many strategies fail.”

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Class Discussion (contd.)

Class Discussion (contd.)

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CORPORATE GOVERNANCE AND

STRATEGY

Course coordinator: Dr. Zahid Riaz.

Nature and purpose of the

corporation
• Corporation is a mechanism established to allow
different parties to contribute capital, expertise and
labour/employees for their mutual benefit.
• Corporation is governed by the board of directors that
oversees top management with the concurrence of the
shareholders.
• Legal fiction versus real entity.
• Agency theory – principal-agent conflicts and principal-
principal conflicts.
• Purpose of the corporation – shareholder wealth
creation.

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Role of shareholders and agency

conflicts
• Who are the passive investors?

• From 2007 to 2017, $1.3 trillion flowed into

passive investors.

• Passive shareholders invest in a company for its

long-term growth potential.

• Active investing requires a hands-on approach.

Composition and role of board of

directors
•Corporate boards are collegial bodies.

•Can a sharp line be drawn between

governing and managing?

•Gender diversity at corporate boards.

•Independent corporate boards.

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Director and executive compensation

• Board’s compensation (or remuneration)

committee.
• CEO-to-worker pay ratio at the 350 largest U.S.
companies increased from 20-to-1 in 1965 to
312-to-1 in 2017.
• Compensation benchmarking.
• Say-on-Pay.
• Total Shareholder Return (TSR).
• Linking executive pay to sustainability metrics –
Environment, Social and Governance (ESG).

Corporate oversight, risk assessment

and accountability
•Can you tell me what did happen to Enron?
•What is meant by the “synergistic corruption.”
•The “Inside Job-2010” documentary for
understanding synergistic corruption.

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What did happen to FTX?

An example… article or video?

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Share price in 2017

Share price in 2024

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2022 Annual Survey – Key findings

2023 Annual Survey – Key findings

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Corporate governance in current

times

STAKEHOLDER CAPITALISM,
BUSINESS PURPOSE AND STRATEGY

Course Coordinator: Dr. Zahid Riaz

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• Businesses need both resources and social acceptance.

• What does a business organization represent in the realm of our ontology?

• Can we trust business organizations?

• Social relationships exist to facilitate exchange.

• Is the business a manifestation of social relationship(s)?

• Ethics as a sort of supplement to business.
• Are they separate orders?

• Intensification of competitive
and performance pressures.
• Milton Friedman (1970) argued,
‘the only responsibility of
business is to make a profit.’
• Weakening of the capacities of
the nation-states vis-à-vis
transnational and multinational
businesses.
• Business Roundtable – August
2019.
• Stakeholder Capitalism.
• Davos Manifesto - 2020.

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the purpose of a company is to engage

all its stakeholders in shared and
sustained value creation…

What is corporate social responsibility?

• A corporation has responsibilities to society that
extend beyond making a profit.
• Friedman’s traditional view of a business firm:

• Argues against the concept of social responsibility.

• Primary goal of business is profit maximization not
spending shareholder money for the general social
interest.
• Do you agree with Friedman? Why and why not?

• Profits are merely means to an end, not an end in itself.

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Can businesses
solve social
problems?

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Making
choices and
creating fit…

CSR and firm performance

• 127 studies found that “there is a positive association and very little
evidence of a negative association between a company’s social
performance and its financial performance.”

• 52 studies on social responsibility and performance reached the

same conclusion.

• In 2018, a recent study revealed a positive relationship between

economic and social performance.

• In 2020, meta-analysis based on 437 primary studies.

• A positive link between CSR and CFP.

• Huang K, Sim N, Zhao H. Corporate social responsibility, corporate financial

performance and the confounding effects of economic fluctuations: A meta-
analysis. International Review of Financial Analysis. 2020 Jul 1;70:101504.

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Where are we heading?

• According to Porter and Kramer, “social and economic goals are not
inherently conflicting, but integrally connected.”

• Social capital can be used for competitive advantage and reputation.

• Porter’s video.

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Step-1: Pour

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Step-2: Stir

Step-3: Settle

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Step-4: Filter before drinking

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