Presentation on theme: "Introduction to Business Policy and Strategy"— Presentation transcript:
1 Introduction to Business Policy and Strategy Chapter-1Introduction to Business Policy and Strategy
2 Concept of StrategyThinking Strategically: The Big Strategic QuestionsWhere are we now?2. Where do we want to go?Business(es) to be in and market positions to stake outBuyer needs and groups to serveOutcomes to achieve3. How will we get there?A company’s answer to “how will we get there?” is its strategy
3 Management’s “game plan” to Consists of the combination of competitive moves and business approaches used by managers to run the companyManagement’s “game plan” toAttract and please customersStake out a market positionCompete successfullyGrow the businessAchieve targeted objectives
4 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.
5 Strategy as a game planIt 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.
6 The Hows That Define a Firm's Strategy How to please customersHow to respond to changing market conditionsHow to out compete rivalsHow to grow the businessHow to manage each functional piece of the business and develop needed organizational capabilitiesHow to achieve strategic and financial objectives
7 Striving for Competitive Advantage To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at eitherProviding a distinctive product or service orDeveloping competitive capabilities rivals can not matchAchieving a sustainable competitive advantage greatly enhances a company’s prospects forWinning in the marketplace andRealizing above-average profits
8 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, thatproduces sustainable competitive advantage!
9 “Strategy is a course of action through which an organization relates itself with the environment so as to achieve the objectives.”
10 ScopeMission and objectivesIdentification of substantial competitive advantagesOrganizationResource development
11 Strategic Approaches to Building Competitive Advantage Strive to be the industry’s low-cost providerOut compete rivals on a key differentiating featureFocus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyersDevelop expertise, resource strengths, and capabilities not easily imitated by rivals
12 A Company’s Strategy Is Partly Proactive and Partly Reactive
13 Conceptual Foundation in Strategic management Chapter-2Conceptual Foundation in Strategic management
14 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 RobbinsonIt 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
15 Benefits of Strategic Management Financial BenefitsOffsetting uncertainty (in changing environment)Clarity in direction & ObjectivesImprove Efficiency and effectiveness of the OrganizationPersonnel satisfactionBetter delegation, co-ordination, monitoring , performance evaluation and controlSearching and improving upon competitive advantage
16 Limitation of Strategic Management Complex and dynamic EnvironmentRigidity of StrategistInadequate focus and appreciation to Strategic ManagementImplementation limitation (Resources, Improper timing)Vague and general objective, Lack of communication of objective
17 Strategic Management Process StrategistMission & ObjectivesThe General EnvironmentIndustry & International EnvironmentInternal EnvironmentGeneric Strategy alternativesStrategy ChoiceResources and StructurePolicies, Plans and AdministrationEvaluation and ControlAnalysisChoiceStrategic VariationImplementation
18 Vision reflects a desired future “Where we are going?” It gives idea about Border sense of the businessMissionMission Shows existence of the business“Who we are?” and “What we Do?”It is a narrow sense of the business
19 Objectives Objective deals with reasons of existence “Why We are in Business?”It is further narrow the business sense
21 Strategic Management Process StrategistMission & ObjectivesThe General EnvironmentIndustry & International EnvironmentInternal EnvironmentGeneric Strategy alternativesStrategy ChoiceResources and StructurePolicies, Plans and AdministrationEvaluation and ControlAnalysisChoiceStrategic VariationImplementation
22 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.
23 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.
24 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.
25 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.
26 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.
27 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.
29 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.
30 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.
31 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.
32 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.
33 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.”
34 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.
35 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.
36 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.
37 Why Do Companies Pursue Expansion Strategies? Many executives equate expansion with effectiveness.Some believe that society benefits from expansion.Managerial motivationExternal pressure from stakeholders or securities analysts.
38 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.
39 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.
40 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.
41 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.
42 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.
43 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.
44 Combination StrategyA 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).
45 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.
46 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.
47 STRATEGY, ETHICS AND SOCIAL RESPONSIBILITY CHAPTER- 10STRATEGY, ETHICS AND SOCIAL RESPONSIBILITY
48 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 toConduct activities in an ethical manner?Demonstrate socially responsible behavior byBeing a committed corporate citizen andAttending to needs of non-owner stakeholders?
49 What Are Ethical Principles? Involves concepts ofRight and wrong behaviorsFair and unfair actionsMoral and immoral behaviorsExamples of ethical behaviorsHonestyIntegrityKeeping one’s wordRespecting rights of othersPracticing the Golden RuleBeliefs about what is ethical serve as a moral compass to guide behaviors of individuals and companies
50 Concept of Business Ethics Business ethics involves applying general ethical principles and standards to business behaviorEthical principles in business are not different from ethical principles in generalBusiness actions are judged byGeneral ethical standards of societyNot by more permissive standards
51 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 performanceActions often taken by managersCut costs wherever savings show up immediatelySqueeze extra sales out of early deliveriesEngage in short-term maneuvers to make the numbersStretch the rules further and further, until limits of ethical conduct are overlookedExecutives feel pressure to hit performance targets since their compensation depends heavily on company performanceFundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line
52 WHERE DO ETHICAL STANDARDS COMR FROM- ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS AND SITUATIONAL CIRCUMSTANCESAccording 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
53 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”
54 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.
55 The School of Ethical Relativism Apart from certain universal basics –HonestyTrustworthinessFairnessAvoiding unnecessary harmRespecting the environment –variations exist in what societies generally agree to be right and wrong in the conduct of business activities
56 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:
57 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.
58 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.
59 Payment of Bribes and Kickbacks A thorny ethical problems is faced by multinational companiesDegree of cross-country variability in paying bribes as part of business transactionsCompanies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local customForeign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business
63 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)
64 According to integrative Social contracts theory, the ethical standards a company should try to uphold are governed both by1. a limited number of universal ethical principles that are widely recognised as putting legitimate ethical boundaries on actions and behaviour in all situations and2. the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behaviour and what does not.
65 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”
66 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
67 Three Categories of Management Morality Moral managerManagerial ethical and moral principlesImmoral managerAmoral manager
68 Characteristics of a Moral Manager Dedicated to high standards of ethical behavior inOwn actionsHow the company’s business is to be conductedConsiders it important toBe a steward of ethical behaviorDemonstrate ethical leadershipPursues business successWithin confines of both letter and spirit of lawsWith a habit of operating well above what laws require
69 Characteristics of an Immoral Manager Actively opposes ethical behavior in businessWillfully ignores ethical principles in making decisionsViews legal standards as barriers to overcomePursues own self-interestsIs an example of capitalistic greedIgnores interests of othersFocuses only on bottom line – making one’s numbers
70 Characteristics of an Intentionally Amoral Manager Believes business and ethics should not be mixed since different rules apply toBusiness activitiesOther realms of lifeViews ethics as inappropriate for tough, competitive business worldConcept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)
71 What Are the Drivers of Unethical Strategies and Business Behavior? The large numbers of immoral and amoral business peopleOverzealous pursuit of personal gain, wealth, and other selfish interestsHeavy pressures on company managers to meet or beat earnings targetsA company culture that places profits and good performance ahead of ethical behavior
72 Overzealous Pursuit of Personal Gain, Wealth, and Selfish Interests People obsessed with wealth accumulation, greed, power, and status oftenPush ethical principles aside in their quest for self gainExhibit few qualms in doing whatever is necessary to achieve their goalsLook out for their own best interestsHave few scruples and ignore welfare of othersEngage in all kinds of unethical strategic maneuvers and behaviors
73 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 performanceActions often taken by managersCut costs wherever savings show up immediatelySqueeze extra sales out of early deliveriesStretch the rules further and further, until limits of ethical conduct are overlookedExecutives feel pressure to hit performance targets since their compensation depends heavily on company performanceFundamental problem with a “make the numbers” syndrome – Company does not serve its customers or shareholders well by placing top priority on the bottom line
74 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 toIgnore “what’s right”Engage in most any behavior or employ most any strategy they think they can get away withPlay down the relevance of ethical strategic actions and business conduct
75 What Is Socially Responsible Business Behavior? A company should strive to balance benefits of strategic actions toBenefit shareholders against any possible adverse impacts on other stakeholdersProactively mitigate any harmful effects on the environment that its actions and business may haveSocially responsible behaviors includeCorporate philanthropyActions to earn the trust and respect of stakeholders for a firm’s efforts to improve the general well-being ofCustomersEmployeesLocal communitiesSocietyEnvironment
76 Categories of Socially Responsible Business Behavior
77 Linking Strategy and Social Responsibility Management should match a company’s social responsibility strategy to itsCore valuesBusiness missionOverall strategyThe combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategySome companies are integrating social responsibility objectives into theirMissionsPerformance targetsStrategies
78 Reasons to Behave in a Socially Responsible Manner Generates internal benefitsEnhances recruitment of quality employeesIncreases retention of employeesImproves employee productivityLowers costs of recruitment and trainingsReduces risk of reputation-damaging incidents, leading to increased buyer patronageWorks in best interest of shareholdersMinimizes costly legal and regulatory actionsProvides for increased investments by socially conscious mutual funds and pension benefit managersFocusing on environment issues may enhance earnings
79 Strategy for competing in Globalize Market Chapter-12Strategy for competing in Globalize Market
80 What Is the Motivation for Competing Internationally? Gain access tonew customersCapitalizeon corecompetenciesHelpachievelower costsSpreadbusiness risk across wider market baseObtain access to valuable naturalresources
81 International vs. Global Competition Company operates in a select few foreign countries, with modest ambitions to expand furtherCompany markets products in 50 to 100 countries and is expanding operations into additional country markets annuallyInternationalCompetitorGlobal
82 Cultures and lifestyles differ among countries Cross-Country Differences in Cultural, Demographic, and Market ConditionsCultures and lifestyles differ among countriesDifferences in market demographicsVariations in manufacturing and distribution costsFluctuating exchange ratesDifferences in host government economic and political demands
83 How Markets Differ from Country to Country Consumer tastes and preferencesConsumer buying habitsMarket size and growth potentialDistribution channelsDriving forcesCompetitive pressures
84 Different Countries Have Different Locational Appeal Manufacturing costs vary from country to country based onWage ratesWorker productivityNatural resource availabilityInflation ratesEnergy costsTax rates
85 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
86 Two Primary Patterns of International Competition Multi-country CompetitionGlobal Competition
87 Characteristics of Multi-Country Competition Market contest among rivals in one country not closely connected to market contests in other countriesBuyers in different countries are attracted to different product attributesSellers vary from country to country
88 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!
89 Sellers vary from country to country Industry conditions and competitive forces in each national market differ in important respects
90 Characteristics of Global Competition Competitive conditions across country markets are strongly linkedMany of same rivals compete in many of the same country marketsA true international market existsA firm’s competitive position in one country is affected by its position in other countriesCompetitive advantage is based on a firm’s world-wide operations and overall global standing
91 Strategy Options for Competing in Foreign Markets ExportingLicensingFranchising strategyMulti-country strategyGlobal strategyStrategic alliances or joint ventures
92 Export StrategiesInvolve using domestic plants as a production base for exporting to foreign marketsExcellent initial strategy to pursue international salesAdvantagesConservative way to test international watersMinimizes both risk and capital requirements
93 An export strategy is vulnerable when Minimizes direct investments in foreign countriesAn export strategy is vulnerable whenManufacturing costs in home country are higher than in foreign countries where rivals have plantsHigh shipping costs are involvedAdverse fluctuations in currency exchange rates
94 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 marketsDesires to avoid risks of committing resources to markets which areUnfamiliarPolitically volatileEconomically unstable
95 DisadvantageRisk of providing valuable technical know-how to foreign firms and losing some control over its use
96 Franchising Strategies Often is better suited to global expansion efforts of service and retailing enterprisesAdvantagesFranchisee bears most of costs and risks of establishing foreign locationsFranchisor has to expend only the resources to recruit, train, and support franchiseesDisadvantageMaintaining cross-country quality control
97 Multi-Country Strategy Strategy is matched to local market needsDifferent country strategies are called for whenSignificant country-to-country differences in customers’ needs existBuyers in one country want a product different from buyers in another countryHost government regulations preclude uniform global approach
98 Two drawbacks1. Poses problems of transferring competencies across borders2. Works against building a unified competitive advantage
99 Global StrategyStrategy for competing is similar in all country marketsInvolvesCoordinating strategic moves globallySelling in many, if not all, nations where a significant market existsWorks best when products and buyer requirements are similar from country to country