Introduction to Business Policy and Strategy

Introduction to Business Policy and Strategy
Chapter-1 Introduction to Business Policy and Strategy

Concept of Strategy Thinking Strategically: The Big Strategic Questions Where are we now? 2. Where do we want to go? Business(es) to be in and market positions to stake out Buyer needs and groups to serve Outcomes to achieve 3. How will we get there? A company’s answer to “how will we get there?” is its strategy

Management’s “game plan” to
Consists of the combination of competitive moves and business approaches used by managers to run the company Management’s “game plan” to Attract and please customers Stake out a market position Compete successfully Grow the business Achieve targeted objectives

A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the envt. It is designed to ensure that the basic objective of the enterprise are achieved through proper execution by the org. A strategy begins with a concept of how to use the resources of the firm most effectively in a changing envt.

Strategy as a game plan It is similar to the concept in sports of a game plan. Before a team goes onto the field, effective coaches examine a competitor’s past plans and strengths and weaknesses. Then they look at their own team’s strengths and weaknesses. The objective is to win the game with minimum of injuries.

The Hows That Define a Firm's Strategy
How to please customers How to respond to changing market conditions How to out compete rivals How to grow the business How to manage each functional piece of the business and develop needed organizational capabilities How to achieve strategic and financial objectives

Striving for Competitive Advantage
To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at either Providing a distinctive product or service or Developing competitive capabilities rivals can not match Achieving a sustainable competitive advantage greatly enhances a company’s prospects for Winning in the marketplace and Realizing above-average profits

What separates a powerful strategy from an ordinary strategy
is management’s ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage!

“Strategy is a course of action through which an organization relates itself with the environment so as to achieve the objectives.”

Scope Mission and objectives Identification of substantial competitive advantages Organization Resource development

Strategic Approaches to Building Competitive Advantage
Strive to be the industry’s low-cost provider Out compete rivals on a key differentiating feature Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers Develop expertise, resource strengths, and capabilities not easily imitated by rivals

A Company’s Strategy Is Partly Proactive and Partly Reactive

Conceptual Foundation in Strategic management
Chapter-2 Conceptual Foundation in Strategic management

 Definition “Strategic Management”
It is a stream of decisions and actions which leads to the development of an effective strategy or strategies to help in achieving corporate objectives. It is defined as the set of decisions and actions in formulation and implementation of designed strategy to achieve the goal of the organization – Pearce and Robbinson It is primarily concerned with relating the organization to its environment, formulating strategies to adapt to that environment, and assuring that implementation of strategies takes place - Steiner

Benefits of Strategic Management
Financial Benefits Offsetting uncertainty (in changing environment) Clarity in direction & Objectives Improve Efficiency and effectiveness of the Organization Personnel satisfaction Better delegation, co-ordination, monitoring , performance evaluation and control Searching and improving upon competitive advantage

Limitation of Strategic Management
Complex and dynamic Environment Rigidity of Strategist Inadequate focus and appreciation to Strategic Management Implementation limitation (Resources, Improper timing) Vague and general objective, Lack of communication of objective

Strategic Management Process
Strategist Mission & Objectives The General Environment Industry & International Environment Internal Environment Generic Strategy alternatives Strategy Choice Resources and Structure Policies, Plans and Administration Evaluation and Control Analysis Choice Strategic Variation Implementation

Vision reflects a desired future “Where we are going?”
It gives idea about Border sense of the business Mission Mission Shows existence of the business “Who we are?” and “What we Do?” It is a narrow sense of the business

Objectives Objective deals with reasons of existence
“Why We are in Business?” It is further narrow the business sense

Strategy Alternatives
Chapter- 5 Strategy Alternatives

Strategic Management Process
Strategist Mission & Objectives The General Environment Industry & International Environment Internal Environment Generic Strategy alternatives Strategy Choice Resources and Structure Policies, Plans and Administration Evaluation and Control Analysis Choice Strategic Variation Implementation

You have reexamined ideal goals in light of the expected outcomes of pursuing the existing strategy.
As a result, u should be in a position to consider the underlying potential for a gap between expected and ideal performance outcomes. From the diagram, u have completed the analysis and diagnosis phase of the SMP and are ready to begin the choice phase.

This phase consist of 2 activities:
1. the generation of a reasonable no.of strategic alternatives that will help to fill the gaps matching the ETOP and SAP. 2. The choice of a strategy to reduce the gaps. We have to see how the strategic decision makers generate alternatives strategies to fill the gaps found when the results of the 2 profiles and the firm’s goals are compared.

Relative to the gap analysis, we start with the current strategy.
If the gap is small (on the basis of the analyses of goals, external factors, internal factors), then we assume that the current strategy is adequate and little or no change is required. If the gap increases (threats, opportunities, strengths, weaknesses or goal changes weaknesses create gap) then strategy alternatives to close the gap need to be considered.

By comparing the ETOP and SAP, u will acquire clues about the nature of strategic alternatives to close any gaps. The alternatives for change are being generated with the perspective of improving performance by taking action to close performance gaps expected in the future.

Who are the generator of strategic alternatives:
In a corporation the primary generator of strategic alternatives is the top manager, and in the multiple-SBU firm, the primary generators are the SBU top managers and the corporate top manager. Lower level managers are also involved to the extent that they prepare proposals for consideration by top managers.

For instance, an R&D unit may propose that additional resources be allocated for the development of a new product. Functional level managers are also involved to the extent that plans to implement strategies are considered as part of the strategy formulation process, and strengths and weaknesses coming from functional levels are evaluated by these managers as inputs to the total process.

Generic strategy Alternatives
Stability Strategy Expansion Strategy Retrenchment Strategy Combination Strategy

Stability Strategy: A Stability Strategy is a strategy that a firm pursue when: 1. It continues to serve the public in the same product or service, market, and function sectors as defined in its business definition, or in very similar sectors. 2. Its main strategic decisions focus on increment improvement of functional performance.

Stability strategy are implemented by “steady as it goes” approaches to decisions.
Few major functional changes are made in the product or service line, markets, or functions. In an effective stability strategy, a company will concentrate its resources where it presently has or can rapidly develop meaningful competitive advantage in the narrowest possible product-market function scope consistent with its resources and market requirement.

A stability strategy may lead to defensive moves such as taking legal action or obtaining a patent to reduce competition. Stability usually involves keeping track of new developments to make sure the strategy continues to make sense. Note that Stability approach is not a “do nothing” approach; nor does it mean that goals such as profit growth are abandoned.

The stability strategy can be designed to increase profits through such approaches as improving efficiency in current operations. This strategy is typical for firms in a mature stage of development, or mature product-market evolution.

Why Do Companies Pursue a Stability Strategy?
A no. of explanations can be offered to support stability: The firm is doing well or perceives itself as successful. Mgmt does not always know what combination of decisions is responsible for this. So, “we continue the way we always have around here.”

2. A Stability Strategy is less risky.
3. It is easier and more comfortable for all concerned to pursue a stability strategy. 4. Too much expansion can lead to inefficiencies. 5. The envt is perceived to be relatively stable, with few threats to cause problems or few opportunities the firm wishes to take advantage of it.

Expansion Strategy: An expansion strategy is a strategy that a firm pursue when: It serves the public in additional product or service sectors or adds markets or functions to its definition. It focuses its strategic decisions on major increases in the pace of activity within its present business definition.

A firm implements this strategy by redefining the business- either adding to the scope of activity or substantially the efforts of the current business. Expansion is usually thought of as “the way” to improve performance.

Why Do Companies Pursue Expansion Strategies?
Many executives equate expansion with effectiveness. Some believe that society benefits from expansion. Managerial motivation External pressure from stakeholders or securities analysts.

Retrenchment Strategies:
A Retrenchment Strategy is pursued by a firm when: It sees the desirability of or necessity for reducing its product or services lines, markets or functions. It focuses its strategic decisions on functional improvement through the reduction of activities in units with negative cash flows.

A firm could also reduce its functions.
E.g.,a firm may choose to sell most or all of its output to a single customer. Retrenchment is frequently used during the decline stage of a business when it is considered possible to restore profitability.

Why Do Companies Pursue Retrenchment Strategy?
This strategy is hardest to pursue.. it goes against the brains of most strategist. And it implies failure. A few reasons are as follows: The firm is not doing well or perceives itself as doing poorly. The firm has not met with its objectives by following one of the other generic strategies, and there is a pressure from stakeholders, customers, or others to improve performance.

3. The envt is seen to be so threatening that internal strengths are insufficient to meet the problems. 4. Better opportunities in the envt are perceived elsewhere, where a firm’s strengths can be utilized. Any strategy, if chosen at the right time and implemented properly, will be effective.

The retrenchment strategy is the best strategy for the firm which has tried everything, has made some mistakes, and is now ready to do something about its problems. The more serious the problems the more serious the retrenchment strategy needs to be. It is the hardest strategy for the business to follow.

It implies that someone or something has failed, and no one wants to be labeled a failure.
But retrenchment can be used to reverse the negative trends and set the stage for more positive strategic alternatives.

Combination Strategy A combination strategy is a strategy that a firm pursues when: Its main strategic decisions focus on the conscious use of several grand strategies (S,E,R) at the same time (simultaneously) in several SBUs of the company. It plans to use several grand strategies at different future times (sequentially).

With combination strategies, the decision makers consciously apply several grand strategies to different parts of the firm or to different future periods. The logical possibilities for a simultaneous approach are stability in some areas, expansion in others; stability in some areas, retrenchment in others; retrenchment in some areas, expansion in others; and all 3 strategies in different areas of the company.

Why Do Companies pursue a Combination Strategy?
A combination strategy is not an easy strategy to use. It is much easier to to keep a firm in one set of values or one strategy at a time. But when a company faces many envt and these envt are changing at different rates, and the company’s products are in different stages of the life cycle, it is easy to visualize conditions under which a combination strategy makes sense.

STRATEGY, ETHICS AND SOCIAL RESPONSIBILITY
CHAPTER- 10 STRATEGY, ETHICS AND SOCIAL RESPONSIBILITY

Linkage of Strategy to Ethics and Social Responsibility
Should there be a link between a company’s efforts to craft and execute a winning strategy and its duties to Conduct activities in an ethical manner? Demonstrate socially responsible behavior by Being a committed corporate citizen and Attending to needs of non-owner stakeholders?

What Are Ethical Principles?
Involves concepts of Right and wrong behaviors Fair and unfair actions Moral and immoral behaviors Examples of ethical behaviors Honesty Integrity Keeping one’s word Respecting rights of others Practicing the Golden Rule Beliefs about what is ethical serve as a moral compass to guide behaviors of individuals and companies

Concept of Business Ethics
Business ethics involves applying general ethical principles and standards to business behavior Ethical principles in business are not different from ethical principles in general Business actions are judged by General ethical standards of society Not by more permissive standards

Heavy Pressures on Company Managers to Meet or Beat Earnings Targets
Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers Stretch the rules further and further, until limits of ethical conduct are overlooked Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line

WHERE DO ETHICAL STANDARDS COMR FROM-
ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS AND SITUATIONAL CIRCUMSTANCES According to the school of Ethical Universalism, some concepts of what is right and what is wrong are universal; that is, they transcend all cultures, societies, and religions. For instances, being truthful (or lying, or not being honest) is considered right by the peoples of all nations

Demonstrating integrity of character, not cheating and treating people with dignity and respect are concepts that resonate with people of most cultures and religions. “To the extent that there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries; there exists a set of universal ethics”

According to the School of Ethical Universalism, the same standards of what’s ethical and what’s unethical resonate with peoples of most societies regardless of local traditions and cultural norms; Hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances.

The School of Ethical Relativism
Apart from certain universal basics – Honesty Trustworthiness Fairness Avoiding unnecessary harm Respecting the environment – variations exist in what societies generally agree to be right and wrong in the conduct of business activities

According to the school of ethical relativism different societal cultures and customs have divergent values and standards of right and wrong- Thus what is ethical and unethical must be judged in the light customs and social mores and can vary from one culture or nation to another. Consider the following examples:

The use of underage labor:
in industrialized nations, the use of underage workers is considered taboo; so company should not employ children under the age of 18 as full-time workers nor source any products from foreign suppliers that employ underage workers.

However, in India, Bangladesh, Sri Lanka, Ghana, Turkey and 100 plus other countries, it is customary to view children as potential, even necessary, workers. Many poverty-stricken families cannot subsist without the income earned by young family members, and sending their children to school instead of having them participate in the workforce is not a realistic option.

Payment of Bribes and Kickbacks
A thorny ethical problems is faced by multinational companies Degree of cross-country variability in paying bribes as part of business transactions Companies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business

Ethics and integrative Social Contracts Theory
Social contract theory provides a middle position between the opposing views of universalism (that the same set of ethical standards should apply everywhere) and relativism (that ethical standards vary according to local custom)

According to integrative Social contracts theory, the ethical standards a company should try to uphold are governed both by 1. a limited number of universal ethical principles that are widely recognised as putting legitimate ethical boundaries on actions and behaviour in all situations and 2. the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behaviour and what does not.

However, universal ethical norms take precedence over local ethical norms.
In other words, universal ethical principles apply in those situations where most all societies- endowed with rationality and moral knowledge- According to integrated social contracts theory, universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a “social contract”

That all individuals in all situations have a duty to observe.
Within the boundaries of this social contract, local cultures or groups, can specify other impermissible actions; however, universal ethical norms always take precedence over local ethical norms

Three Categories of Management Morality
Moral manager Managerial ethical and moral principles Immoral manager Amoral manager

Characteristics of a Moral Manager
Dedicated to high standards of ethical behavior in Own actions How the company’s business is to be conducted Considers it important to Be a steward of ethical behavior Demonstrate ethical leadership Pursues business success Within confines of both letter and spirit of laws With a habit of operating well above what laws require

Characteristics of an Immoral Manager
Actively opposes ethical behavior in business Willfully ignores ethical principles in making decisions Views legal standards as barriers to overcome Pursues own self-interests Is an example of capitalistic greed Ignores interests of others Focuses only on bottom line – making one’s numbers

Characteristics of an Intentionally Amoral Manager
Believes business and ethics should not be mixed since different rules apply to Business activities Other realms of life Views ethics as inappropriate for tough, competitive business world Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)

What Are the Drivers of Unethical Strategies and Business Behavior?
The large numbers of immoral and amoral business people Overzealous pursuit of personal gain, wealth, and other selfish interests Heavy pressures on company managers to meet or beat earnings targets A company culture that places profits and good performance ahead of ethical behavior

Overzealous Pursuit of Personal Gain, Wealth, and Selfish Interests
People obsessed with wealth accumulation, greed, power, and status often Push ethical principles aside in their quest for self gain Exhibit few qualms in doing whatever is necessary to achieve their goals Look out for their own best interests Have few scruples and ignore welfare of others Engage in all kinds of unethical strategic maneuvers and behaviors

Heavy Pressures on Company Managers to Meet or Beat Earnings Targets
Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Stretch the rules further and further, until limits of ethical conduct are overlooked Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line

Company Culture Places Profits and Good Performance Ahead of Ethical Behavior
In an ethically corrupt or amoral work climate, people have a company-approved license to Ignore “what’s right” Engage in most any behavior or employ most any strategy they think they can get away with Play down the relevance of ethical strategic actions and business conduct

What Is Socially Responsible Business Behavior?
A company should strive to balance benefits of strategic actions to Benefit shareholders against any possible adverse impacts on other stakeholders Proactively mitigate any harmful effects on the environment that its actions and business may have Socially responsible behaviors include Corporate philanthropy Actions to earn the trust and respect of stakeholders for a firm’s efforts to improve the general well-being of Customers Employees Local communities Society Environment

Categories of Socially Responsible Business Behavior

Linking Strategy and Social Responsibility
Management should match a company’s social responsibility strategy to its Core values Business mission Overall strategy The combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy Some companies are integrating social responsibility objectives into their Missions Performance targets Strategies

Reasons to Behave in a Socially Responsible Manner
Generates internal benefits Enhances recruitment of quality employees Increases retention of employees Improves employee productivity Lowers costs of recruitment and trainings Reduces risk of reputation-damaging incidents, leading to increased buyer patronage Works in best interest of shareholders Minimizes costly legal and regulatory actions Provides for increased investments by socially conscious mutual funds and pension benefit managers Focusing on environment issues may enhance earnings

Strategy for competing in Globalize Market
Chapter-12 Strategy for competing in Globalize Market

What Is the Motivation for Competing Internationally?
Gain access to new customers Capitalize on core competencies Help achieve lower costs Spread business risk across wider market base Obtain access to valuable natural resources

International vs. Global Competition
Company operates in a select few foreign countries, with modest ambitions to expand further Company markets products in 50 to 100 countries and is expanding operations into additional country markets annually International Competitor Global

Cultures and lifestyles differ among countries
Cross-Country Differences in Cultural, Demographic, and Market Conditions Cultures and lifestyles differ among countries Differences in market demographics Variations in manufacturing and distribution costs Fluctuating exchange rates Differences in host government economic and political demands

How Markets Differ from Country to Country
Consumer tastes and preferences Consumer buying habits Market size and growth potential Distribution channels Driving forces Competitive pressures

Different Countries Have Different Locational Appeal
Manufacturing costs vary from country to country based on Wage rates Worker productivity Natural resource availability Inflation rates Energy costs Tax rates

Quality of the business environment varies from country to country
Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location

Two Primary Patterns of International Competition
Multi-country Competition Global Competition

Characteristics of Multi-Country Competition
Market contest among rivals in one country not closely connected to market contests in other countries Buyers in different countries are attracted to different product attributes Sellers vary from country to country

Industry conditions and competitive forces in each national market differ in important respects
Rival firms battle for national championships – winning in one country does not necessarily signal the ability to fare well in other countries!

Sellers vary from country to country
Industry conditions and competitive forces in each national market differ in important respects

Characteristics of Global Competition
Competitive conditions across country markets are strongly linked Many of same rivals compete in many of the same country markets A true international market exists A firm’s competitive position in one country is affected by its position in other countries Competitive advantage is based on a firm’s world-wide operations and overall global standing

Strategy Options for Competing in Foreign Markets
Exporting Licensing Franchising strategy Multi-country strategy Global strategy Strategic alliances or joint ventures

Export Strategies Involve using domestic plants as a production base for exporting to foreign markets Excellent initial strategy to pursue international sales Advantages Conservative way to test international waters Minimizes both risk and capital requirements

An export strategy is vulnerable when
Minimizes direct investments in foreign countries An export strategy is vulnerable when Manufacturing costs in home country are higher than in foreign countries where rivals have plants High shipping costs are involved Adverse fluctuations in currency exchange rates

Licensing Strategies Licensing makes sense when a firm
Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets Desires to avoid risks of committing resources to markets which are Unfamiliar Politically volatile Economically unstable

Disadvantage Risk of providing valuable technical know-how to foreign firms and losing some control over its use

Franchising Strategies
Often is better suited to global expansion efforts of service and retailing enterprises Advantages Franchisee bears most of costs and risks of establishing foreign locations Franchisor has to expend only the resources to recruit, train, and support franchisees Disadvantage Maintaining cross-country quality control

Multi-Country Strategy
Strategy is matched to local market needs Different country strategies are called for when Significant country-to-country differences in customers’ needs exist Buyers in one country want a product different from buyers in another country Host government regulations preclude uniform global approach

Two drawbacks 1. Poses problems of transferring competencies across borders 2. Works against building a unified competitive advantage

Global Strategy Strategy for competing is similar in all country markets Involves Coordinating strategic moves globally Selling in many, if not all, nations where a significant market exists Works best when products and buyer requirements are similar from country to country

Introduction to Business Policy and Strategy

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