Module – 1

Introduction to Strategic Management and Business Policy

Topics Covered
1) Evolution of Strategic Management and Business Policy
2) Business Policy: Meaning, Objectives, Nature, Classification, Importance
3) Understanding Strategy: Meaning, Nature, Levels
4) Strategic Decision Making
5) Policy, Strategy and Tactics
6) Introduction To Strategy Management
7) Components of Strategy Management
8) Process of Strategy Management
9) Schools of Thought of Strategy Formation (Henry Mintzberg 10 Schools of thought)

Evolution of Strategic Management and Business Policy

Historical Evolution of Strategic Management and Business Policy started in 1911 at Harvard
Business School. In 1911 HBS introduced an Integrative course in management to create general
management capability.
Origin and Etymology of the word Strategy
Origin of the word strategy can be observed in the Greek word Strategos (from word Strategia) in
1680. Meaning of Strategos is General Army or Military commander.
Historical Evolution of Strategic Management & Business Policy
Below is the detailed information about the Evolution of Strategic Management. This can be
explained with the help of the following key points.
1911: Harvard Business School Introduced Course in Management
1959: Introduction of Business Policy in Academics
1969: The American Assembly of Collegiate Schools of Business, a regulatory body for business
schools, made the course of Business Policy a mandatory for the purpose of recognition
1980-2000: Business policy has become an integral part of Management Curriculum
The term Business Policy has been used traditionally until the end of the 20th century.
After that, the new titles Strategic Management, Corporate Strategy and Policy have been used.
Evolution based on Managerial Practices

1) Use of plannings techniques by Managers can be observed as an important part of the development of
the term Business Policy.
2) Along with day to day planning and practices, managers began planning for the future, including
budgets and other resources.
You can also use the following simple chart to understand the evolution of the term Strategic
Management.
First Short term planning (day to day) Replaced by Long-range Planning
Then Long-range planning replace by Strategic Planning
Then Strategic Planning replaced by Strategic Management
The term Strategic Management is nowadays used to describe the process of Strategic Decision Making.
Business Policy
Business policy is the study of the roles and responsibilities of top-level management, the significant
issues affecting organizational success and the decision affecting organization in the long run.
Business policy defines the scope or spheres within which decisions can be taken by the subordinates in
an organization.
A business policy is a verbal, written or an implied overall guide setting up boundaries that supply the
general limits and directions in which managerial action will take place.
Examples of Business Policy:
1) HR Policy: Hiring, Training, Transfers/Promotion, Wages
2) Materials Policy: Quality-Quantity, Stores & Handling, Vendors, Payment Terms
3) Marketing Policy: What to sell, Where, To Whom, Through Whom
4) Quality Policy: Standards, Checks & Controls, Feedback
Development of Business:
As a Discipline
1911: Harvard Business School introduced a course aimed at creation of general management capability.
1959: Gordon and Howell recommended a capstone course of business policy.
1969: American Assembly of Collegiate Schools of Business made the course mandatory.
From the US, the practice of including business policy in the curriculum of management spread to other
of the world.
As a Managerial Practice:
Glueck views the development of business policy as arising from the use of planning techniques by
managers. Starting from day-to-day planning, managers began to use long range planning. Soon long
range planning was replaced by strategic planning and later by Strategic Management.
Objectives of Business Policy:
1) Business policies are broad guidelines by the organization's decision makers. These guidelines
indicate how an organization should deal with recurring problems in its routine operation.
2) Assists managers in taking continuous actions to achieve business goals.
3) Challenges the threatening situations.
4) Supports organizational mission.
5) Aids in strategy formulation, implementation and control
Nature of Business Policy:
Policies guide the objectives on right path. A policy has the following characteristics:
1) Broad Statement for the attainment of Objectives:
Policies serve as a guide to action. They help the executives to take proper action in the light of
objectives of the organization.
2) Consistency in Decision Making:
Policy provides consistency in decision making usually under recurring and repetitive situations.
3) Policies have a hierarchy:
The Top Management determines the overall corporate policies, departmental heads determine their
policies and lower level managers frame policies for routine activities.
4) Assists in Smooth Functioning:
Policies tend to avoid confusion and thereby enable the organization to undertake activities in an orderly
and smooth manner.
5) Facilitates Allocation and Utilization of Resources

Importance of Business Policies:

Business policy is a guideline that directs the organization towards achieving predetermined goals
and objectives.
Stability to the Organization
Clear delegation of authority
Helps in taking Right Decision
Effective co-ordination and control
Optimum utilization of resources
Enhances corporate image
Helps to achieve objectives

Classification of a Business Policy:

The Business Policy can be classified into several groups as follows:
I) Classification on the basis of Levels of Management:
1) Top Level Management Policies
2) Middle Level Management Policies
3) Lower Level Management Policies
II) Classification on the basis of Functional Area
1) HR Policies 2) Finance policies 3) Marketing Policies 5) Production Policies
III) Classification on the basis of Expression:
1) Express Policies (Oral Policies, Written Policies) 2) Implied Policies
IV) Classification on the basis of Origin:
1) Originated Policies 2) Appealed Policies 3) Imposed Policies
V) Classification on the basis of Scope:
VI) Classification on the basis of Situation:
1) Normal Policies, 2) Contingency Policies.

Essentials of Business Policy:

2) A good business policy should be clear, simple and suitable to the organization. Following are the
essentials of a good business policy:
1) Object Oriented 2) Flexible 3) Acceptance 4) Simple 5) Suitable 6) Stable
6) Comprehensive
Understanding Strategy:
The word Strategy comes from the Greek word ‘Strategos’ which means a general. In military science,
Strategy literally means the art & science of directing military forces in a war or battle. Today, the term
strategy is used in business to describe how an organization is going to achieve its overall objectives.
Most organizations have several alternatives for achieving its objectives. Strategy is concerned with
deciding which alternative is to be adopted to accomplish the overall objectives of the organization.
Strategy is a Comprehensive long term plan. It tries to answer three main questions:
What is the present position of the firm?
What should be the future position of the firm?
What should be done to attain the future position?
Definition
“Strategy is a plan of action or policy designed to achieve a major overall aim”- Oxford Dictionary
“Strategy is the determination of the basic long-term goals & objectives of an enterprise & the adoption
of the course of action and the allocation of the resources necessary for carrying out these goals”- Alfred
D Chandeler
The term Strategy can be defined in a Simple words as follows:
“Strategy is a broad long-term plan designed to achieve the overall objectives of the firm”
Nature & Characteristics of Strategies: (Features)
1) Objective Oriented:
Strategies are developed in order to achieve the objectives of the organization. To formulate strategies,
one has to know the objectives that are to be pursued & also the policies that must be followed.
2) Future Oriented
Strategy is a future oriented plan. It is designed to attain future position of the organization. Through
Strategy, management studies the present position of the organization & their aims at attaining the future
position of the organization. The strategy provides answer to certain questions relating to
Profitability of the present business
Continuity of the present business
Entry into difference businesses in future
Effectiveness of the present policies of the organization.
Growth & expansion of the business in the long run.
3) Unified, Comprehensive and Integrated
A Strategy is not Just plan. It is a unified, Comprehensive & integrated plan. It is unified as it unifies all
the parts of sections of the organization together. It is comprehensive as it covers all the major aspects or
areas of the organization. It is integrated as all the parts of the plan are compatible with each other and
fit together well.
4) Strategy Alternatives
Organizations need to frame alternative strategies. It is not sufficient to frame one or two strategies.
Small organizations survive with one or two strategies due to fewer complexities in their business.
However, large organizations need to frame alternative strategies in respect of growth & survival of the
organization. It can be into fours broad groups:
1) Stable Growth Strategy 2) Growth Strategy 3) Retrenchment Strategy 4) Combination Strategy
5) Relates to the Environment
The internal and external environment affects the strategy formulation & implementation. The internal
environment relates to mission & objectives of the firm, the labor management relations, and the
technology used, the physical, financial & human resources. The external environment relates
Competition, Customer, Channel, intermediaries, Government policies & other social, economic &
political factors.
6) Allocation of Resources
For effective implementation of Strategy, there is a need for proper allocation of the resources. Proper
allocation of resources is required to undertake the various activities so as to attain objectives. The
resources can be broadly divided into 3 groups:
Physical resources such as plant & machine
Financial resources i.e. Capital
Human resources i.e. Man Power
7) Universal Applicability
Strategy is universally applicable. It is applicable to business organization as well as to non-business
organization. This is because every organization need to frame strategies for their growth & survival.
The presence of Strategies keeps the organizations moving in the right direction.
8) Periodic Review
Strategies need to be reviewed periodically. Such review is required to revise the strategies depending
upon the changing needs of the business. Periodic review of strategies is required to gain competitive
advantage in the market.
9) Applicable to all functional areas
Strategies are applicable to all functional areas. The functional areas include production, marketing,
finance, human resources management, etc. Strategies aid in planning, organizing, directing &
controlling activities in all functional areas.
The Levels Of Strategy
Strategists often refer to three levels of strategy: corporate level strategy, business level strategy,
and functional level strategy.
But, they are missing a fundamental level that is key for successful strategy execution: operational
level strategy.
This article outlines the basics of the four levels in strategic management, but if you're interested in
delving deeper into a specific level, we also offer individual articles dedicated to each one:
1) Corporate Level Strategy 2) Business Level Strategy
3) Functional Level Strategy 4) Operational Level Strategy
4)Strategic Decision Making:

Managers make numerous significant business decisions each year to increase sales figures in the shorter
term and consider the bigger picture and direct the future of an organization. One approach to these
kinds of choices is by using strategic decision-making. This method of making important business
decisions helps to make sure that an organization bases its decisions on the company's mission and
vision or its objectives.

Strategic decisions are choices made that consider a company's mission and its strategic objectives.
There are various times when it's important for a company to use strategic decision making. For instance,
when deciding whether or not to enter or exit an existing market, introducing a new product or service to
their offering, withdrawing or discontinuing an existing product or service or whether to target a new or
existing customer segment. The action taken considers the whole environment in which the organization
operates and the company's resources, instead of focusing on purely short-term gain.

2) Policy, Strategy & Tactics

Strategy Can be defined as: “A company’s strategy consists of the combination of competitive
moves and business approaches that managers employ to please customers, compete successfully,
and achieve organizational objectives.”

A term often confused with strategy is ‘Policy’; however, it is a different concept from strategy. ‘Policy’
is derived from a Greek work Politeia meaning ‘polity’ i.e. the state and the citizens. The dictionary
meaning of policy is the art or manner of governing a nation or the principles on which any measure or
course of action is based. Therefore, policy is the prescribed guidelines for governing actions of an
organization with respect to given objectives.

According to Kotler, “Policies define how the company will deal with stakeholders, employees,
customers, suppliers, distributors, and other important groups. Policies narrow the range of individual
discretion so that the employees act consistently on important issues.”While comparing Strategy and
Policy, it is derived that:

- Policy is a broader or more general concept in the form of guidelines or principles; however, Strategy
is more specific as it relates to a particular situation, objective or target.

- Policy generally comes first; and strategies are considered as element of policy.

Another term tactics is also at times confused with strategy, however, from an overall strategy, a number
of sub-strategies follow. These sub-strategies are referred as tactics. Tactics are the specific activities
which deliver and implement the strategies in order to fulfil objectives and pursue the mission. Often
short term; they can be changed frequently if necessary.

Examples – Strategy v/s Tactics

Developing all-rounders in a cricket team => Strategy and sending Irfan Pathan at # 3 is Tactic.

In army mission, beefing up infantry on the desert borders but attacking via water orders => Strategy
and Deploying Submarines / Frigates is Tactic.

In a business scenario, Mittal Steel (before Arcelor) acquiring a string of ailing steel plants => Strategy
and Systematically cutting costs (there) requires Tactic.

Differences between Strategy and Tactics

BASIS FOR
TACTICS STRATEGY
COMPARISON
Meaning A carefully planned action made A long range blue print of an organization's
to achieve a specific objective is expected image and destination is known as
Tactics. Strategy.
Concept Determining how the strategy be An organized set of activities that can lead
executed. the company to differentiation.

Nature Preventive Competitive

What is it? Action Action plan

Focus on Task Purpose

Formulated at Middle level Top level

Risk involved Low High

Approach Reactive Proactive

 BASIS FOR
TACTICS STRATEGY
COMPARISON
Flexibility High Comparatively less

Orientation Towards the present conditions Future oriented

Now, while comparing policy, tactics and strategy it is clear that policy comes before strategy and
strategy comes before tactics. However, all these concepts are closely interrelated and play crucial
roles in the management of a company.
3) Introduction To Strategy Management:
Strategic management is the concept of identification, implementation, and management of the
strategies that managers carry out to achieve the goals and objectives of their organization. It can
also be defined as a bundle of decisions that a manager has to undertake which directly contributes to
the firm’s performance.
The manager responsible for Strategic management must have a thorough knowledge of the internal
and external organizational environment to make the right decisions.
The basic concept of strategic management consists of a continuous process of planning, monitoring,
analyzing and assessing everything that is necessary for an organization to meet its goals and
objectives. In simple words, it is a management technique used to prepare the organization for the
unforeseeable future.
Strategy management helps create a vision for an organization that helps to identify both predictable
as well as unpredictable contingencies. It involves formulating and implementing appropriate
strategies so the organization can attain sustainable competitive advantage.
4) Components of Strategy Management: The following are the Components of the strategic
Management process:
[Link] Components of Strategic Management Process
I-Strategy Formulation
1 Framing of Mission and Objectives
2 Analysis of Internal Environment
3 Analysis of External Environment
4 GAP Analysis
5 Framing Alternative Strategies
6 Choice of Strategies
II-Strategy Implementation
 1 Formulation of Plans Programs and Projects
2 Project Implementation
3 Procedural Implementation
4 Resource Allocation
5 Structural Implementation
6 Functional Implementation
7 Behavioral Implementation
III-Strategy Evaluation
1 Setting of Standard
2 Measurement of Performance
3 Comparison of Actual Performance with Standards
4 Finding Out Deviations
5 Analyzing Deviations
6 Taking Corrective Measures
5) Strategic Management Process -
The strategic management process means defining the organization’s strategy. It is also defined as
the process by which managers make a choice of a set of strategies for the organization that will
enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the
organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future
competitor’s and then reassesses each strategy.
Strategic management process has following steps:

Environmental Scanning- (Establishment of Strategic Intent) Environmental scanning refers to a

process of collecting, scrutinizing and providing information for strategic purposes.

It helps in analyzing the internal and external factors influencing an organization.

After executing the environmental analysis process, management should evaluate it on a continuous
basis and strive to improve it.

Strategy Formulation- (Formulation of Strategies)Strategy formulation is the process of deciding

best course of action for accomplishing organizational objectives and hence achieving organizational
purpose.
 After conducting environment scanning, managers formulate corporate, business and functional
strategies.

Strategy Implementation- (Implementation of Strategies) Strategy implementation implies

making the strategy work as intended or putting the organization’s chosen strategy into action.

Strategy implementation includes designing the organization’s structure, distributing resources,

developing decision making process, and managing human resources.

Strategy Evaluation- (Strategic Evaluation) Strategy evaluation is the final step of strategy
management process.

The key strategy evaluation activities are: appraising internal and external factors that are the root
of present strategies, measuring performance, and taking remedial/corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s implementation meets the
organizational objectives.
These components are steps that are carried, in chronological order, when creating a new strategic
management plan.
Present businesses that have already created a strategic management plan will revert to these steps as
per the situation’s requirement, so as to make essential changes.

Feedback
Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.
6) Henry Mintzberg’s 10 school of thoughts for Strategy formulation
A school of thought refers to a doctrine, a feeling, an intellectual tradition collectively drawn by a
group of people who share common opinion or outlook of a philosophy/discipline/belief or social
movement. In strategic management, the Ten Schools of Thought model by Prof. Henry Mintzberg is
a framework that explains approaches of defining a strategy; it can be in the form of a design, a
plan, positioning, consumerist, cognitive (subjective); it can be learning; it can be power-centric; it
can be culture-centric; it can be environment-centric; or it can also be configured (formative).
 1) The Design School
2) The Planning School
3) The Positioning School
4) The Entrepreneurial School
5) The Cognitive School
6) The Leaning School
7) The Power School
8) The Cultural School
9) The Environmental School
10) The Configuration School

The Prescriptive School of Thought

Thinkers in these schools focused on the ways of formulating strategies rather than how they form in
reality. So in a way they are prescriptive about the formulation of strategies. This group comprises
the following schools:

1) The Design School:

This school sees strategy formation as a process of conception.

This approach embraces the adage look before you leap

In this thought process of strategy formulation, the focus is on conception of ideas and to design new
ideas. It’s responsible for development of the Strengths, Weaknesses, Opportunities and Threats
(SWOT) model. Strengths and weaknesses of a company are mapped, along with opportunities and
threats. The strategy is a fit between internal capabilities and external potentials. The CEO is a
strategist who develops strategy and controls execution.

However, we have to understand that conducting an internal analysis of the firm depends on the
firms own knowledge about itself. Similarly, matching the firms internal abilities to the external
market, requires external market knowledge. Ultimately, knowledge is a limitation to the Design
school of thought of strategy formulation. If proper knowledge is not used, this school of thought
will fail.

2) The Planning School:

This school sees strategy formation as a formal process.
This approach embraces the adage a stitch in time saves nine.
In this case, the thought process runs towards planning the entire strategy in a rigorous manner, so
that the firm advances forward.

The complete process and the plan which the company will implement is documented from the start
to finish. At all times the plan is referred to whenever the management wants to take new decisions.
With the plan in hand, the management gets a clear direction to move in, helping the company to
move forward unanimously.

The issue arises in the planning school of thoughts when anything happens out of plan. If you have
planned for years in advance, and any new competitor pops up, or any external business variable is
changed, then the complete plan gets affected. Hence, proper prediction is most essential when using
the planning school of thought.

3) The Positioning School:

This school sees strategy formation as an analytical process.

This approach embraces the adage Nothing but the facts.
In this process of strategy formulation, the management decides that they want to position
the product at the top of the mind and makes decisions accordingly.

The management has to determine the competition already present in the market, and where is their
own company positioned. It can use tools like Five forces, Value chain, BCG matrix and others to
position its products. Once the market has been analyzed, the right strategy is needed to improve
the positioning of the product.

Again, in the positioning school of thought, the strategy assumes the market as it is, and does not
take into consideration future entrants or change in business environment. Like the planning strategy,
the positioning of school of thought can also fail if there are major changes in the business
environment.

The Descriptive School of Thought:

As compared to the Prescriptive Schools, where a single person usually at the top position held the
centre stage, the Descriptive Schools give the prime position to the ‘visionary’ who could be gifted
with abilities such as intuition, judgment, wisdom, experience or insight. This visionary could
translate ideas into strategy around which strategic management revolved. The writings of this
school can be traced back to 5 1930s to Schumpeter. The recent exponents of this school are Drucker,
Kaplan and Mintzberg. This school comprises the following approaches:
4) The Entrepreneurial School:
This school sees strategy formation as a visionary process.
This approach embraces the Statement Take us to your leader.
This school of thought puts all the focus on the CEO of the company. Most observed in small
businesses which want to make it large, or even large corporations which trust their leaders (Steve
jobs, Mark zuckerberg), in this strategic process, the company follows whatever the CEO says.

In this case, the CEO needs to be visionary, needs strong leadership skill, and has to have the right
judgement and direction. This strategy has been proven right in very few cases over the years where
the leaders were legendary by themselves. Steve jobs, Bill gates, Mark Zuckerberg are all examples
of people who have grown companies to astounding proportions due to their leadership skills.

The problem with this management school of thought is a single one – Where to find a mature,
experienced, talented and honest leader? If you want to design your marketing strategy based on the
recommendations by the leader of the company, then this leader can be wrong as well. And you need
someone who is very very strong on the business front and is dynamic to make the necessary
changes, also who takes responsibilities of success and failure of strategies.

5) The Cognitive School:

This school sees strategy formation as a mental process.

This approach embraces the saying I will see it when I believe it.

In this thought process, people’s perception and information is studied. One of the best examples of
cognitive studies is the Johari window. Wherein, you can better your business by understanding your
customers.

It is a mental and psychological process to find out what is in the minds of the consumer and how do
we improve on that or use that information. Once you know customers perception and thought
process about you, you can change the same with strategy. You can either improve or you can
communicate better so that your customers have more information about you.

The problem with the cognitive model is that it is not practical beyond a certain point. A top
company cannot rely on surveys alone to find new ideas or to make connections with their customers,
because it has become a mass company by that time. Cognitive reasoning cannot be done at a mass
stage.

Moreover, innovations are brought when you think of products which the customers have not
thought of – which is not possible in the cognitive school of thought. Because you are only
improving on the things which your customers perceive.

6) The Learning School:

This school sees strategy formation as an emergent process.

This approach embraces the adage If at first you don’t succeed, try again and again.
In this thought process, the management keeps a watch over what has already happened and then
forms the future strategy looking at the past. It might not necessarily look at its own past. It might
look at the way things worked for some other company, or how some other company failed. And
then decide on which strategy to implement and which one to ignore.

The company looks at things that worked and tries to implement the same thing over time with the
assumption that it will work again. The company also looks at things that did not work in its favour
(or in favour of a competitor who tried the same thing), and discards such things / processes.

More than a strategy, the learning school of thought looks like manoeuvring or guiding the company
on the basis of the previous road that has gone by. We all know its not a good decision because the
road can change at any time. Hence this thought process is not at all useful at time of crisis, nor does
it help in creating something outstanding. This strategy can be used when the firm is stable, and
wants to work on auto mode while it develops something else in the meantime.

7) The Power (or Political) School:

This school sees strategy formation as a process of negotiation.

This approach embraces the saying Look out for number.

In this school of thought, the people who are in power take the decisions. These people can be your
customers, they can be your stakeholders, they can also be certain people from within the
management.

Anyone who is known to have power over the company, can drive the company forward. This
ensures that there is lesser resistance for the strategy to be implemented. It is a very realistic thought
process, because in corporate’s, there are so many people that power should reside in few hands.

The problem with the power school happens when the powerful people stop listening to feedback or
stop implementing measures of improvement, and only focus on minor improvements. At such times,
the power needs to change hands so that the company keeps moving forward. (Absolute Power
Corrupts You Absolutely)

8) The Cultural School:

This school sees strategy formation as a collective process.
This approach embraces the adage An apple never falls from the tree.
The cultural school of thought says that the company has a fantastic capital in terms of its human
capital as well as its social capital. A positive culture in the firm can give a proper direction to the
firm, also a positive culture harnesses innovations and entrepreneurial culture.

The cultural school tries to involve many different departments within a company. It is most useful
during mergers and acquisitions. It emphasizes the role of social values, beliefs and culture
in decision making
There can be resistance to the cultural school as the same people whom we are trying to unite, might
not like the idea of change, due to which they become united and the company moves in the opposite
direction. Moreover, even if you have got the people united, and have built a strong culture, your
direction still remains unclear.

9) The Environmental School:

This school sees strategy formation as a reactive process.
This approach embraces the sentiment: It all depends.

More of a situational school of thought, the environmental school gives most of the importance to
the environment. For example – In a paper industry, wood plays a major role. And if the wood is
scarce, the strategy formulation will have to be done on the basis of wherever the wood is available.

Major emphasis is on the environment – which can be a raw material or a major factor in the strategy
of the company. Situational analysis is the most used tool in the environmental school.

Obviously, this thought process depends on the situation, and is used when there is total dependence
on environmental factors.

The Configuration School of Thought

10) The Configuration School:
This school sees strategy formation as a process of transformation.
This approach embraces the adage To everything there is a season.
One of the most preferred amongst the 10 School of thoughts is the configuration school. It basically
says, that the strategy needs to be configured. The strategy allows the firm to move from one
position to another, hence a simple set of values will not help this movement.

As per the configuration school, strategy needs to consider a lot of thing which can go wrong, and
cannot be derived from simple set of values. Over a period of time, an organization forms various
sets of values which have to be transformed so that the organization reaches the point that it desires.
To do this, the organizations stable business might need to be disrupted, and the organization has to
be configured so that it reaches the success it was looking for.

Hence, the name configuration school, so that the organization is configured over and over again
unless it reaches the desired result.

******************End of Module-1******************

Dr. Rahul Kapale

Assistant Professor