The nature of business policy and strategic management

Learning Objectives
After studying this chapter, you should be able to do the following:
➢ Describe the strategic-management process.
➢ Explain the need for integrating analysis and intuition in strategic management.
➢ Define and give examples of key terms in strategic management.
➢ Discuss the nature of strategy formulation, implementation, and evaluation activities.
➢ Describe the benefits of good strategic management.

1.1. The Nature of Business Policy

1.1.1. Meaning of policy

The term policy has been derived from a Greek word ―” politieia” - meaning ‗citizen ‘; and from
Latin word “polities” – meaning ‗polished, i.e. to say clear’. The word "policy" can be used
to cover matters ranging from high order strategy to administrative detail. Nowadays, the
concept of policy refers to an attempt to define a structure – a rational basis for action or
inaction. In a business circle, the word ―policy is often used loosely but it involves a vast scope
of principles and it is basic to the success of any organization.

What is policy? There is no simple answer to this question. Perhaps that is why so many people
claim to have little or no understanding of policy. In fact, many would say that they don’t
―do policy. Others maintain that it has only minor relevance to their work – or, for that
matter, their lives. Not so. We literally eat, drink and breathe policy. Policy determines the
quality of the air we breathe and the water we drink. It affects the food we eat – how it is
harvested, where it is distributed and sold, and how much we pay. It controls the way in which
we clean and monitor the safety of the water supply. It influences virtually every aspect of
our life.

Policy can encompass a position, an intention or a plan on any issue where the government or
the organization needs to take action. Some of the basic definitions of policy include;

• Policy is a proposed course of action within a given environment to realize

objectives;
• Policy is a rule or regulation that enables to achieve objectives;
• Policy is a guideline or direction to attain specified goals;
• Policy is a written statement of what to do and not to do;
• Policy implies a decision as to what shall be done and how, when and where.
In short, ―policy" is an umbrella and multi-dimensional concept that provides a framework for
action. Policy is a set of guiding principles, an acceptable practice, or a rule intended to
influence organizational decision- making. Policies are formal in nature, broad in their
application, and rarely change unless a regulation, law, or code of practice changes in the

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The nature of business policy and strategic management

industry. While policies are typically written and defined by management, they are commonly
reviewed, approved, and maintained at periodic and specified intervals and whenever legal
requirements or regulations change.

Thus, policy is a purposive or goal-oriented action, rather than random behavior or accidental
occurrences. In addition, it refers to the broad approach & direction taken by government and
organizations toward an issue – policy report/official document. Therefore, to assure
consistency and uniformity of action, sound policy must be formulated.

1.1.2. Policy Formulation

It is a complex process that requires both systematic analysis and judgment experience. The
various steps involved in the process of policy formulation are:
1. Analysis of environment: At the time of formulation of policy, the management should
understand and analyze the internal and external environment of a company. Any
change in the environmental forces affect the organizational goals and policies.
Therefore, policy makers should monitor and forecast the environmental changes.
2. Goal specification: Policies should be formulated in the light of corporate goals.
Corporate goals are based on market condition, competition, government policies, input
supply position, resources, etc… All these factors should be kept in mind while making
policy.
3. Policy alternatives: Every policy should have an alternative which may be used in the
situation when original policy doesn’t work. The environmental analysis will reveal the
strength, weakness and risk of an organization, which will lead to generate alternative
policies.
4. Evaluation of policy alternatives: Alternative policy should be evaluated in terms of
their contribution to corporate goals. The effectiveness of policy can be tested by
evaluating the profitability, growth, and image of the company in the minds of customers.
5. Selecting policy: Selecting policy from alternatives is the last step in the process of policy
formulation.
The policy finally chosen should be tested in terms of its influence on organizations. If it is
suitable, it must be used; if not it should be reviewed and revised. The selected policy should
be communicated to all those who are concerned with it. Policy making is a continuous and
complex task that crosses all levels of the department’s work, ranging from the most general
to the most specific. A well-designed policy document is more likely to be better received
and understood.

1.1.3. Contents of Policy Document

A policy documents should be brief, written in plain language and include the following core
elements:
• Purpose/ intention - a brief, clear and direct explanation of what the policy is
intended to achieve and to whom it is intended to apply.

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The nature of business policy and strategic management

• Legislative base - a reference to the legislation that provides the authority for the
policy statement.
• Scope - to whom and to what the policy applies, where the policy will have effect
and the public value it will add
• Context - a brief description of the context within which the policy will
operate, including connections with government directions.
• Principles - a description of the principles that have shaped the development of
the policy and their effect on the way in which it should be applied.
• Responsibility - Identification of those responsible for implementing the policy
and what is expected of them.
• Policy statement - the policy itself.
• Evaluation process - a description of the way in which the impact of the policy
will be assessed and a timeline for this.
• Review date - a date for review of the policy.
• Document and version control- the docum ent and author name version, sign
off and publication date.
• Contacts, supporting tools and resources people - as a minimum, a contact person
who can assist with inquiries about the policy and any other tools or supporting
materials that will help the policy to be understood and successfully implemented.
Criteria for good policy include:

✓ Is it client focused?
✓ Will it be useful for the intended users, e. g, service users, staff and management
members?
✓ Does it include policies on all areas relevant for accreditation and legislative
requirements?
✓ Will it improve the likelihood service a quality service?
✓ Is it easy to find and access?
✓ Does it inspire the reader?
Policy Process; is a series of steps that policy makers go through to agree on a policy &
implement it. One of the most commonly known policy processes is the “rational model”.
The main steps involved in this model are:

a) Identification (problem or opportunity)

b) Develop alternatives (solve problem or exploit the opportunity)
c) Choice (the best alternative)
d) Implementation (the best alternative).
e) Evaluation and feedback.
Policy Analysis: refers to both the process of assessing policies or programs, and the product
of that analysis. A policy analyst: uses qualitative and quantitative data; uses a variety of
approaches to the problem; applies appropriate methods correctly. It also refers to studying the
policy to be implemented It includes: Content of policy; Impact of environment on policy;

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Institutional arrangements; Impact of policy on political system & vice versa; Impact of policy
on society (expected & unexpected). Policy analysis is based on social problem approach;
policy analysis involves the recognition of a problem. This can be expressed in sequence:
Issue (e.g. people sleeping on the streets), Problem (homelessness) and Policy (more
housing).

1.1.4. Business Policy

Business Policy: can be formulated by business organizations: corporations or companies.
Formulation is mainly the responsibility of board of directors, chief executive officers, company
presidents, & managers at different levels.

Main Purpose of Business Policy

• Efficient utilization of scarce resources
• Value creation to fulfill the interests of stakeholders
Determinants of Business Policy
The common factors those determine business policy are:
➢ Market structure: The nature and scope of the market for the company’s product is a
key factor in policy determination. Segmentation of market, designing different products
for different segments, etc… is the policy matter which should be carefully analyzed.
➢ Competition: Business policy is influenced by competition. Hence every firm must take
into account the competitors’ strengths and weaknesses.
➢ Government policies: Government policies for reservation of certain products for
public sectors, private sectors and small-scale sector, industrial licensing, export-import
control act, control of wealth in few hands, price amalgamation and merger, expansion,
foreign exchange regulation act, etc… exercises significant influences on business policy.
➢ Technology: Technological development forces the management to go for it. If the
organization doesn’t adopt the advanced technology it cannot face risk and return of
technological obsolesces. Therefore, the nature of technology cost and risk involved in it
are the determinants of technology.
➢ Social and political environment: It is known that enterprises deal with people, religion,
cultural and ethnic dimensions of social environment. The social environment consists of
the views, pressures and inter-relationship of various sections of the society. Therefore,
enterprises must keep in mind the above noted facts into consideration while formulating
the policies.
➢ Business objectives: Business objectives are concerned with profitability, market share,
growth, diversification, social responsibility, etc… Therefore, policy makers should take
into account the objectives of business while formulating the corporate policy.
➢ Management philosophy: Management philosophy exercises a significant influence on
policy formulation. Autocratic and paternalistic management formulates the policies
without consulting subordinates. And participative and democratic management consults
while formulating the policies.
Some concepts that are common to any business policy are:

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The nature of business policy and strategic management

• Policy is a necessity if a given business is to realize its objectives. Policy and

objectives are not the same nature. The main difference between policy and
objective are; Objective is an end whereas policy is a means to that end. Objective
involves accomplishment while policy involves the method for accomplishment.
Objectives are the criteria for action; policies are the part of the action. But both
are the sole duties and responsibilities of managers whose business is decision
making.
• Policy is a definite statement of purpose and procedure: For a business to
function effectively, managers must base their decisions on governing principles;
because policy is basic to this effort. A definite statement of principles or
procedures will bring about an understanding of requirements for effective action
or management.
• Policy is a means by which company objectives are effectively reconciled with
internal factors and organizational functions: The objectives and decision making
are contingent on internal factors. Managers must set goals that are reasonable in
accordance with internal factors – the company’s resources and organizational
functions, - and which involves various sections.
• Policy is a statement of procedure or principle by which a company intends to
realize its objectives: It insures proper direction toward definite objectives of a
business in the light of internal factors and organizational functions.
The Objectives of Business Policy
The objectives of business policy have been stated by authors such as Christensen et al. and
Steiner et al. in terms of knowledge, skills and attitudes. These objectives could be derived
from the purpose of business policy.

In Terms of Knowledge
1. The learners of business policy have to understand the various concepts involved.
Many of these concepts, like, strategy, policies, plans and programs are encountered
in the functional are courses too. It is imperative to understand these concepts
specifically in the context of business policy.
2. Knowledge of the external and internal environment and how it affects the functioning
of an organization is vital to an understanding of business policy. Through the
tools of analysis and diagnosis a learner can understand the environment in which a
firm operates.
3. Information about the environment helps in the determination of the mission,
objectives, and strategies of a firm. The learner appreciates the manner in which strategy
is formulated.
4. The implementation of strategy is a complex issue and is invariably the most difficult
part of strategic management. Though the knowledge gained from business policy, the
learner will be able to visualize how the implementation of strategic management can
take place.

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The nature of business policy and strategic management

5. To learn the problems in real-life business are unique and so are the solutions in an
enlightening experience for the learners. The knowledge component of such an
experience stresses the general approach to be adopted in problem solving and decision-
making. With a generalized approach, it is possible to deal with a wide variety of
situations. The development of this approach is an important objective to be achieved
in terms of knowledge.
6. To survey the literature and learn about the research taking place in the field of business
policy is an important knowledge objective.
In Terms of Skills
1. Lead to the development of skills so as to be able to apply that which has been learnt.
Such an application can take place by analysis of case studies and their interpretation, and
by analysis of the business events taking place around us.
2. Enables to develop analytical ability and use it to understand the situation in a given case
or incident.
3. Lead to the skill of identifying the factors relevant in decision making. The analysis of
the strengths and weaknesses of an organization, the threats and opportunities present in the
environment and the suggestion of appropriate strategies and policies from the core
content of general management decision-making.
4. Increase the mental ability of the learners and enable them to link theory with practice.
Such ability is important in managerial decision-making where a large number of factors
have to be considered at once to suggest appropriate action.
5. As a part of business policy study, case analysis leads to the development of oral as well
as written communication skills.
In Terms of Attitude
1. The attainment of the knowledge and skill objectives should lead to the in calculation of an
appropriate attitude among the learners. The most important attitude developed through
this course is that of generalist. The generalist attitude enables the learners to approach
and asses a situation from all possible angles.
2. By acting in a comprehensive manner, a generalist is able to function under conditions
of partial ignorance by using his/her judgment and intuition. Typically, case analyst
frequently faces the frustrating situation of working with less than the required information.
3. For a general manger information and suggestions are important to possess a liberal
attitude and be receptive to new ideas. Dogmatism with regard to techniques should to be
replaced with a practical approach to decision making for problem solving. In this way, a
general manager can act like a professional manager.
4. It is important to have the attitude to- go beyond and think‖ when faced with a
problematic situation. Developing a creative and innovative attitude is the hall mark of
a general manager who refuses to be bound by precedents and stereotyped decisions.
Meaning and Definition of Strategy
The term strategy is derived from the Greek “strategos/strategia”, meaning “general or art of being
a general”. In a military sense, strategy involves the planning and directing of battles or campaigns
on a broad scale, that is, the responsibility of the general. In this context, strategy is distinguished

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from tactics, which involve the initiation of actions to achieve more immediate objectives. In the
business parlance, there is no definite meaning assigned to strategy, however, “strategy” often is
used to refer to specific actions taken to offset actual or potential actions of competitors. In a more
fundamental sense, the term denotes linkages with the goal-setting process, the formulation of
more immediate objectives, and the selection of specific actions required in the application of
resources to achieve these objectives.
Strategy
 is a tool to organize & allocate an organization’s resources in a viable way based on its
internal competencies & shortcomings, anticipated changes in the environment
 is the use of entity’s resources in the pursuit of its objectives against competition from
rival organizations.
 is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage.
Thus, the main role of strategy is how to accomplish or achieve objectives by using the
organization’s resources & taking into consideration the external environment.
Generally, strategy is:
 A tool to implement policy
 The means used to achieve the ends / objectives
 A future plan that guides the scope & direction of an organization
 Unified plan: it ties all the parts of the enterprise together
 Comprehensive plan: it covers all major aspects of the enterprise
 Integrated plan: all parts of the plan are compatible with each other & fit together well
“Strategy is a unified, comprehensive, & integrated plan relating the strategic advantages of the
firm to the challenges of the environment. It is designed to ensure that basic objectives of the
enterprise are achieved.”

1.2. Definitions of Strategic Management

There are different definitions of strategic management.
1. According to Ansoff- Strategic management is a systematic approach to measure aimed
increasingly important responsibility of general management to position and relates the firm
to its environment to assured the continued success.
 Systematic approach
 Responsibility of the general manager to make strategic decision
 Positioning and relating the firm to its environment
 Continued success
2. According to Rowe et al- Strategic management is a decision process that links the
organizations internal capability with the opportunities and threats it faces in the external
environment.
3. Strategic management is the set of decisions and actions resulting in formulation and
implementation of strategies designed to achieve the objectives of an organization.

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4. Strategic Management refers to defining the organization’s mission, formulating strategies,

and guiding long-term organizational activities consistent with internal & external conditions
(Holt, 1993).
5. “The on-going process of formulating, implementing and controlling broad plans guide the
organizational in achieving the strategic goals given its internal and external environment”.
✓ On-going process: Strategic management is an on-going process which is in existence
throughout the life of organization.
✓ Shaping broad plans: First, it is an on-going process in which broad plans are firstly
formulated than implementing and finally controlled.
✓ Strategic goals: Strategic goals are those which are set by top management. The broad
plans are made in achieving the goals.
✓ Internal and external environment: Internal and external environment generally set
the goals. Simply external environment forced internal environment to set the goals and
guide them that how to achieve the goals?
6. Working Definition- SM can be defined as the art and science of formulating, implementing,
and evaluating cross functional decisions that enables the organization to achieve its objective.
In short, Strategic management is all about managing an enterprise/ organization to achieve
superior performance. At the heart of strategic management, the main question is: Why &
how do some firms outperform others?

During the 1950s, academics and practitioners paid little attention to the practical concepts of
strategy developed during World War II in the military arena. In this post-war period, given the
stability of the markets and increase in demand, most companies in the U.S and Europe were
thinking primarily about efficient production systems. Later, by 1960s, large companies moved
from an emphasis on operations, budgeting and control areas to an emphasis on planning aspects.
The growing complexity and dynamism of the environment and the need for solutions to this
situation from the firm’s top managers demanded future planning and a global view. As a result,
most business schools by that time required “corporate policy” as the “capstone” course at the end
of every business curriculum.
Although there were numerous early contributors to the literature, the most influential pioneers
were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.
1. Alfred Chandler recognized the importance of coordinating the various aspects of management
under one all-encompassing strategy. Chandler also stressed the importance of taking a long-
term perspective when looking to the future. In his 1962 groundbreaking work Strategy and
Structure, Chandler showed that a long-term coordinated strategy was necessary to give a
company structure, direction, and focus. He says it concisely, “structure follows strategy”.
2. In 1957, Philip Selznick introduced the idea of matching the organization's internal factors
with external environmental circumstances. This core idea was developed into what we now
call SWOT analysis
3. Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a
whole new vocabulary. He developed a strategy grid that compared market penetration

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strategies, product development strategies, market development strategies and horizontal and
vertical integration and diversification strategies. In his 1965 classic Corporate Strategy, he
developed the gap analysis still used today in which we must understand the gap between
where we are currently and where we would like to be, then develop what he called “gap
reducing actions
4. Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a
career spanning five decades. His contributions to strategic management were many but two
are most important. Firstly, he stressed the importance of objectives. An organization without
clear objectives is like a ship without a rudder. As early as 1954 he had developed a theory of
management based on objectives. This evolved into his theory of management by objectives
(MBO). His other seminal contribution was in predicting the importance of what today we
would call intellectual capital. He predicted the rise of what he called the “knowledge worker”
and explained the consequences of this for management. He said that knowledge work is non-
hierarchical. Work would be carried out in teams with the person most knowledgeable in the
task at hand being the temporary leader.

1.4. The Nature of Strategic Management

Strategic management is a process for developing and enacting plans to reach a long-term
goal that takes into account internal variables and external factors. Strategic management
encompasses an integrated, future-oriented managerial perspective that is: outwardly focused,
forward-thinking and performance-based.
Strategic managers identify long-range targets, scan their operating environments, evaluate
their organization’s structures and resources, match these to the challenges they face, identify
stakeholders and build alliances, prioritize and plan actions, and make adjustments to fulfill
performance objectives over time.
Strategic management is characterized as looking out, looking in, and looking ahead.
“Looking out” means exploring beyond the boundaries of your organization to set feasible
objectives, identify key stakeholders, and build constituencies for change. “Looking in” implies
critically assessing and strengthening your systems and structures for managing personnel,
finances, and other essential resources. Finally, “looking ahead” entails melding your strategy with
structures and resources to reach your policy goals, while monitoring your progress and adjusting
your approach as needed.
Balancing strategic management’s outward-, inward-, and forward-looking functions helps
you develop a vision and a strategy for where and how to move forward. Balancing these different
perspectives is the essence of managing strategically.
Strategic management comprises five key facets: goal-setting, analysis, strategy formation,
strategy implementation, and strategy monitoring. These are the integral elements that, when
applied together, distinguish strategic management from less comprehensive approaches, such as
operational management or long-term planning. Strategic management is an iterative, continuous
process that involves important interactions and feedback among the five key facets.
➢ Goal setting- enables you to articulate your vision, identify what needs to be accomplished,
define short and long-term objectives, and relate them to what your organization needs to

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do. A mission statement summarizes your purpose and goals in terms of easily understand
by both staff and external stakeholders
➢ Analysis – guides you to collect and consider information so that you fully understand your
situation. Asses external environment and internal situations to identify the strengths and
weaknesses of your organization and the opportunities and threats you face as you seek to
reach your goals.
➢ Strategy formulation- to determine strategy, reflect prioritizes, develop options, and make
decisions. Review the results of the analyses, identify the issues that you and your
implementing partners need to address, and prioritize them in terms of their urgency and
magnitude. Use these results to design alternative strategies and plans that address the key
strategic issues.
➢ Strategy implementation- to implement your strategy, assemble the necessary resources
and apply them. Put the chosen plans in to practice, marshal the resources and
commitments necessary for moving ahead, tap existing capacity and/or build new capacity,
and seek to achieve results.
➢ Strategy monitoring- monitoring allows you to check your progress towards achieving
your goals and assess whether any changes in the environment necessitate alterations to
your strategy. Modify plans and actions to adjust to the impact of changes in the operating
environment. Effective monitoring allows you to react and anticipate. Monitoring also
feeds back in to analysis, strategy design, and implementation in the immediate term and
in to goal-setting over the long-term.

1.5. Dimensions of Strategic Management

There are six dimensions of strategic issues. These include;
1. Strategic issues require top management decisions. Strategic decisions overarch several areas
of a firm’s operations. Therefore, top-management involvement in decision making is
imperative. Only at this level is there the perspective for understanding and anticipating broad
implications and ramifications, and the power to authorize the resource allocations necessary
for implementation.
2. Strategic issues involve the allocation of large amount of company resources-. Strategic
decisions characteristically involve substantial resource deployment. For example; the people,
physical assets or moneys needed must be either redirected from internal resources or secured
from outside of the firm. In either case, strategic decisions commit a firm to a stream of actions
over an extended period of time, thus involving substantial resources.
3. Strategic issues are likely to have a significant impact on the long-term prosperity of the firm.
Strategic decisions ostensibly commit the firm for a long period of time.
4. Strategic issues are future oriented. Strategic decisions are based on what managers anticipate
or forecast rather than on what they know. Emphasis is on developing projections that will
enable the firm to select the most promising strategic options. In the turbulent and competitive
free enterprise environment, a successful firm must take a proactive (anticipatory) stance
toward a change.
5. Strategic issues usually have major multi-functional and multi-business consequences. A
strategic decision is coordinative; decisions about such factors as customer mix, competitive
emphasis, or organizational structure necessarily involve a number of a firm’s strategic
business units (SBU), functions, divisions, or program units. Each of these areas will be

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affected by the allocation or reallocation of responsibilities and resources related to the

decision.
6. Strategic issues necessitate considering factors in the firm’s external environment. All business
firms exist in an open system. They impact and are impacted by external conditions largely
beyond their control. Therefore, if a firm is to succeed in positioning itself in future competitive
situations, its strategic managers must look beyond the limits of the firm’s own operations.
They must consider what relevant others (e.g. competitors, customers, suppliers, creditors,
government, and labor) are likely to do.

1.6. Challenges of Strategic Management

Change is "the process of alteration or transformation of individuals, groups, & organizations
undergo in response to internal and external factors" (Coffey et al, 1994: 638). Thus, change
implies disruption in regular functioning of an organization. If so, why it is necessary? Since the
environment changes, organizations must continually change & adapt to the changing
environment. If not, their growth & even survival is unlikely.
Thus, the main challenge of Strategic Management is change. Change can be caused because of
several factors. However, nowadays, the main leading forces of change are globalization, resource
scarcity, & technological revolution. As a result, organizations face tough competition, shortage
of raw materials, and high labor & equipment costs. Hence, the survival & success of organizations
can be guaranteed with new creativity & innovation. Creativity & innovation are seen as essential
instruments for growth, profit generation, & gaining competitive advantage over competitors.
Creativity is the process of bringing a new idea into being. Innovation is the process of
transforming (adopting) new idea into an organization, service, product, etc.

1.7. The Importance of Strategic Management

Strategic management allows an organization to be more proactive than reactive in shaping its own
future; it allows an organization to initiate and influence (rather than just respond to) activities—
and thus to exert control over its own destiny. Small business owners, chief executive officers,
presidents, and managers of many for-profit and nonprofit organizations have recognized and
realized the benefits of strategic management. Historically, the principal benefit of strategic
management has been to help organizations formulate better strategies through the use of a more
systematic, logical, and rational approach to strategic choice.

In general, strategic management offers the following benefits:

1) It allows for identification, prioritization, and exploitation of opportunities.
2) It provides an objective view of management problems.
3) It represents a framework for improved coordination and control of activities.
4) It minimizes the effects of adverse conditions and changes.
5) It allows major decisions to better support established objectives.
6) It allows more effective allocation of time and resources to identified opportunities.
7) It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc
decisions.
8) It creates a framework for internal communication among personnel.

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9) It helps integrate the behavior of individuals into a total effort.

10) It provides a basis for clarifying individual responsibilities.
11) It encourages forward thinking.
12) It provides a cooperative, integrated, and enthusiastic approach to tackling problems and
opportunities.
13) It encourages a favorable attitude toward change.
14) It gives a degree of discipline and formality to the management of a business.

1.8. Key Terms in Strategic Management

Before we further discuss strategic management, we should define nine key terms: strategists,
mission statements, external opportunities and threats, internal strengths and weaknesses, long-
term objectives, strategies, annual objectives, policies and competitive advantage.
1. Strategists: They are individuals who are most responsible for the success or failure of an
organization. Strategists are individuals who form strategies. Strategists have various job titles,
such as chief executive officer, president, and owner, chair of the board, executive director,
chancellor, dean, or entrepreneur. Strategists help an organization gather, analyze, and
organize information. They track industry and competitive trends, develop forecasting models
and scenario analyses, evaluate corporate and divisional performance, spot emerging market
opportunities, identify business threats, and develop creative action plans. Strategic planners
usually serve in a support or staff role. Usually found in higher levels of management, they
typically have considerable authority for decision making in the firm.
The CEO is the most visible and critical strategic manager. Any manager who has
responsibility for a unit or division, responsibility for profit and loss outcomes, or direct
authority over a major piece of the business is a strategic manager (strategist). Strategists differ
as much as organizations themselves and these differences must be considered in the
formulation, implementation, and evaluation of strategies. Some strategists will not consider
some types of strategies because of their personal philosophies. Strategists differ in their
attitudes, values, ethics, willingness to take risks, concern for social responsibility, concern for
profitability, concern for short-run versus long-run aims and management style.
2. Mission Statement: It is an enduring statement of purpose that distinguishes one business
from other similar firms. A mission statement identifies the scope of a firm's operations in
product and market terms. It addresses the basic question that faces all strategists: What is our
business? A clear mission statement describes the values and priorities of an organization.
Developing a mission statement compels strategists to think about the nature and scope of
present operations and to assess the potential attractiveness of future markets and activities. A
mission statement broadly charts the future direction of an organization.
3. External Opportunities and Threats/ External Assessment: Opportunities are conditions in
the broad and operating environments that allow a firm to take advantage of organizational
strengths, overcome organizational weaknesses, and/or neutralize environmental threats. A
threat is a condition in the general environment that may hinder a company’s efforts to achieve
strategic competitiveness.

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The nature of business policy and strategic management

External opportunities and external threats are variables significantly beyond the control of a
single firm and can benefit and harm the organization in the future. It may arise from economic,
social, cultural, demographic, environmental, political, legal, governmental, technological, and
competitive trends and events.
A basic tenet of strategic management is that firms need to formulate strategies to take
advantage of external opportunities and to avoid or reduce the impact of external threats. For
this reason, identifying, monitoring, and evaluating external opportunities and threats are
essential for success.
4. Internal Strengths and Weaknesses/ Internal Assessment: Strengths are company resources
and capabilities that can lead to a competitive advantage. Weaknesses are resources and
capabilities that a company does not possess, to the extent that their absence places the firm at
a competitive disadvantage. They are activities within the firm (organization).
Internal strengths and weaknesses are an organization's controllable activities that are
performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development, and computer
information systems activities of a business. Identifying and evaluating organizational
strengths and weaknesses in the functional areas of a business is an essential strategic-
management activity. Organizations strive to pursue strategies that capitalize on internal
strengths and improve on internal weaknesses. Strengths and weaknesses are determined
relative to competitors. Relative deficiency or superiority is important information. Also,
strengths and weaknesses can be determined by elements of being rather than performance.
5. Long -term Objectives: They can be defined as specific results that an organization seeks to
achieve in pursuing its basic mission. Long-term objectives represent the results expected from
pursuing certain strategies. The time frame for objectives and strategies should be consistent,
usually from two to five years. Objectives are essential for organizational success because they
state direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and
provide a basis for effective planning, organizing, motivating and controlling activities.
Objectives should be challenging, measurable, consistent, reasonable, and clear. In a
multidimensional firm, objectives should be established for the overall company and for each
division.
Long-term objectives should be quantitative, measurable, realistic, understandable,
challenging, hierarchical, obtainable, and congruent among organizational units. Each
objective should also be associated with a time line. Objectives are commonly stated in terms
such as growth in assets, growth in sales, profitability, market share, degree and nature of
diversification, degree and nature of vertical integration, earnings per share, and social
responsibility. Clearly established objectives offer many benefits.

6. Strategies: Are the means by which long-term objectives will be achieved. Business strategies
may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint venture. Strategies are potential
actions that require top management decisions and large amounts of the firm's resources. In
addition, strategies affect an organization's long-term prosperity, typically for at least five

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The nature of business policy and strategic management

years, and thus are future-oriented. Strategies have multifunctional or multidivisional

consequences and require consideration of both external and internal factors facing the firm.
7. Annual objectives: Annual objectives are short-term milestones that organizations must
achieve to reach long-term objectives. Like long-term objectives, annual objectives should be
measurable, quantitative, challenging, realistic, consistent, and prioritized. They should be
established at the corporate, divisional, and functional levels in a large organization. Annual
objectives should be stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and information systems accomplishments.
A set of annual objectives is needed for each long-term objective. Annual objectives are
especially important in strategy implementation, whereas long-term objectives are particularly
important in strategy formulation. Annual objectives represent the basis for allocating
resources.
8. Policies: Policies are the means by which annual objectives will be achieved. Policies include
guidelines, rules, and procedures established to support efforts to achieve stated objectives.
Policies are guides to decision making and address repetitive or recurring situations. Policies
are most often stated in terms of management, marketing, finance/ accounting,
production/operations, research and development, and computer information systems
activities. Policies can be established at the corporate level and apply to an entire organization,
at the divisional level and apply to a single division or at the functional level and apply to
particular operational activities or departments. Policies, like annual objectives, are especially
important in strategy implementation because they outline an organization's expectations of its
employees and managers. Policies allow consistency and coordination within and between
organizational departments.
9. Competitive advantage: Strategic management is all about gaining and maintaining
competitive advantage. This term can be defined as “anything that a firm does especially well
compared to rival firms.” When a firm can do something that rival firms cannot do, or owns
something that rival firm’s desire, that can represent a competitive advantage. A firm must
strive to achieve sustained competitive advantage by (1) continually adapting to changes in
external trends and events and internal capabilities, competencies, and resources; and by (2)
effectively formulating, implementing, and evaluating strategies that capitalize upon those
factors.

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The nature of business policy and strategic management

1.9. Conceptual Framework of Strategic Management

Strategic management is a continuous process rather than a one-time event.

Perform
external
audit

Establish long Develop Establish Allocate

Develop Measure
term objectives and annual resources
vision and evaluate
mission objectives
alternative and
strategies policies
Perform
internal
audit

Evaluation
Strategy formulation Implementation
Fig 1. Strategic Management Processes
1. Strategy Formulation- is the process of planning strategies. it includes;
 Developing organizational guiding philosophy (values and beliefs), Vision (a forward
– looking statement of what it wants to be in the future) and mission (its current purpose
and scope of operation).
 Identifying external opportunities and threats and determining internal strengths and
weaknesses.
 Establishing long term objectives
2. Strategy Implementation- Strategy formulation results in a plan of action for the company
and its various levels, whereas strategy implementation represents a pattern of decisions and
actions that are intended to carry out the plan. Mostly requires a firm to develop annual
objectives, devise policies, motivate employees and allocate resources. Strategy
implementation involves managing stakeholder relationships and organizational resources in a
manner that moves the business toward the successful execution of its strategies, consistent
with its strategic direction. It includes;
 Preparing budgets.
 Linking employee’s compensation to organizational performance.
 Creating strategy supportive culture.
 Developing effective organizational structure.
3. Strategy Evaluation
 Performance standards must be evaluated/accomplished
 Monitoring progress (organizational goal accomplishment)- comparing actual
performance to the standard
 Initiate corrective actions-either on the standard or actual performance.

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The nature of business policy and strategic management

N.B. Strategic management is not a clean, step by step process. It is not linear, but a messy,
iterative process that requires hard work and dedication from most people in the organization to
move it toward the future. It represents a new focus for the organization; a focus on a compelling
vision of the future.
Guidelines for the Strategic management Process to Be Effective
1. It should be a people process more than a paper process.
2. It should be a learning process for all managers and employees.
3. It should be words supported by numbers rather than numbers supported by words.
4. It should be simple and non-routine.
5. It should vary assignments, team memberships, meeting formats, and even the planning
calendar.
6. It should challenge the assumptions underlying the current corporate strategy.
7. It should welcome bad news.
8. It should welcome open-mindedness and a spirit of inquiry and learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning language.
13. It should not be a formal system for control.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good business” policy.

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