LECTURE 1
INTRODUCTION TO BUSINESS POLICY AND STRATEGY
CHAPTER OUTLINE
1.1 Introduction
1.2 Meaning of Business Policy
1.3 Definitions of Business Policy
1.4 Characteristics of Business Policy
1.5 Meaning of Strategy
1.6 Definitions of Strategy
1.7 Features of Strategy
1.8 Nature and Importance of Business Policy & Strategy
1.9 Comparison between Policy and Strategy
After reading this chapter, students should be able to:
Understand the concepts of Business Policy and strategy
Explain the Differences between strategy and Policy
Describe the features of business policy
Explain characteristics of strategy
1.1. INTRODUCTION
In recent time, all around the world severe competition has surfaced due to number of factors such as
globalization, rapid technological changes, new markets and changing customer expectations which has
lead to increased competition, thereby forcing the businesses to think strategically and make decisions
accordingly. In the present day, the main goal of businesses is developing strategy and methods which
present the best service and production in a most productive and effective way. That is possible with
having a long-term mission to be able to adapt their business in the fast changing world. So, the
necessary strategies need to be identified, formulated and properly implemented in order to succeed.
The dynamic and resource scarce environment, with aware and demanding customers leads to strategic
competition and the resultant increasing complications and accelerating changes in
the environment made the planned policy paradigm inappropriate because the needs of a business could
no longer be served by planned policy formulation.
Therefore, gradually there was a demand for a critical outlook towards the fundamental concept of
business and its relationship with rest of the environment. Strategy is important for the long term
survival of business firms in this competitive marketplace. The concept of business policy and strategy
fulfilled this requirement and hence the understanding of these concepts becomes imperative.
1.2 BUSINESS POLICY: MEANING
Business policies are the guidelines formulated by an organization to govern its actions. They define the
limits and the scope within which decisions must be made by the subordinates. It allows the lower level
management to deal with the issues and challenges without consulting top level management every time
for making decisions.
The term "Business Policy" comprises of two words, Business and Policy. Business as we know means
exchange of goods and services for increasing utilities. Policy may be defined as "the mode of thought
and the principles underlying the activities of an organization or an institution." Policies are general
statements of principles which guide the thinking, decision-making and actions in an organization.
Business policy is a set of principles and rules which directs the decisions of the subordinates. Policies
are framed by the top level management to serve as a road map for operational decision making. It is
helpful in stressing the rules, principles and values of the organization. Policies are designed, by taking
opinions and general views of a number of people in the organization regarding any situation. They are
made from the past experience and basic understanding. In this way, the people who come under the
range of such policies will completely agree upon its implementation.
Policies help the management of an organization to determine what is to be done, in a
particular situation. These have to be consistently applied over a long period of time to avoid
discrepancies and overlapping.
1.3 DEFINITIONS OF BUSINESS POLICY
[Link]: “Business Policy, basically, deals with decisions regarding the future of an ongoing
enterprise. Such policy decisions are taken at the top level after carefully evaluating the organizational
strengths and weaknesses in relation to its environment”.
Henry Mintzberb: “Policy refers to Goal-directed decisions and actions in which capabilities and
resources are matched with the opportunities and threats in the environment.”
“Policy and Strategy are consistent stream of decisions and actions to deal with the environment”.
Christensen, Steiner and others: “The study of the function and responsibilities of senior
management, the crucial problems that affect success in the total enterprise, and the decisions that
determine the direction of the organization and shape its future.”
1.4 FEATURES/CHARACTERISTICS/ESSENTIALS OF BUSINESS POLICY
An effective business policy should have following elements:
1. Specific: Policy should be specific and not generalised. If it is uncertain and generalised, it becomes
tricky and difficult for the subordinates to implement it.
2. Clear: Policy should be written in clear terms. It should be easily understandable to the readers
without being ambiguous. Use of jargons and connotations should be evaded to leave no scope of any
misunderstanding in following the policy.
3. Reliable: Policy must be consistent enough so that it can be trusted and followed by the subordinates
without any doubts and questions in mind regarding its credibility.
4. Uniform: An effective policy should exhibit uniformity at all levels, amongst all the people, within
an organization.
5. Suitable: The business policy should appropriately confirm to the goals and objectives of
the organization. It should reflect the philosophy of the management.
6. Simple: A policy should be simple and easily understood by all in the organization to make the
implementation easier and avoid any problems later on.
7. Comprehensive: Business policy should present a detailed account of all the necessary guidelines
and principles to assist the people in decision making within an organization. The scope should be
wide.
8. Flexible: Policy should be flexible in operation and application so that if deemed
necessary, subsequent changes could be made in it. Although, this does not imply that a policy
should be subjected to changes frequently.
9. Stable: Policy should be stable and last for a consistently long time. Otherwise, it may lead to
indecisiveness and ambiguity in minds of those who would want to follow it while making
decisions.
1.5 STRATEGY: MEANING AND CONCEPT
The word “strategy” is derived from the Greek word “strategos”; stratus meaning army and “ago”
meaning leading or moving, implying, ‘the art of general’.The concept of strategy has been borrowed
from the military and adapted for use in business. In the military, strategy often refers to manoeuvring
troops into position before the enemy actually gets engaged. In this regard, strategy refers to the
deployment of troops. Once the enemy has been engaged, attention shifts to tactics. Here, the
employment of troops is fundamental. Substitute "resources" for troops and the transfer of the concept
to the business world begins to take form. In business, as in the military, strategy bridges the gap
between policy and tactics. Together, strategy and tactics bridge the gap between ends and means.
The 1950's and 1960's saw the word being applied to business operations by managers and academics
who had served in the United States Army Air Force. Strategy is an action that managers take to
accomplish the organization’s goals. Strategy can also be defined as “A general direction set for the
company and its various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process”
The strategy is a master game plan designed for achieving the objectives of an organization. It is a mix
of competitive moves and actions made by the top level management for the accomplishment of goals
successfully. They are dynamic and flexible in nature. Strategies are based on practical experiences,
not on theoretical knowledge, i.e. they are realistic and action-oriented activity.
Strategy is the means by which objectives are deliberately and systematically pursued and achieved
over time. It is not planning as strategy deals with competitive situation in an uncontrolled
environment, whereas, planning deals with situations in a guarded environment. It helps the
practitioners to respond thoughtfully and consciously without the need for instinct or presumptions.
1.6 What is a Strategy: 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. According to William F. Glueck “A unified, comprehensive and integrated
plan designed to assure that the basic objectives of the enterprise are achieved.” In general, corporate
strategies have distinct characteristics such as they are long-range, action oriented, multipronged and
integrated. They are also flexible and dynamic to cope up with uncertainty. Formulated at the top
management level, they flow out of the goals and objectives of the enterprise.
Chandler: “Strategy is a comprehensive master plan that determinates the long term goals of an
enterprise”.
Kenneth Andrews: "Corporate strategy is the pattern of decisions in a company that determines and
reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those
goals, and defines the range of business the company is to pursue, the kind of economic and human
organization it is or intends to be, and the nature of the economic and non-economic contribution it
intends to make to its shareholders, employees, customers, and communities."
Corporate Strategy: Corporate strategy is basically the growth design of the firm; it spells out the
growth objective of the firm - the direction, extent, pace and timing of the firm's growth. It also spells
out the strategy for achieving the growth.
Nature, scope and concerns of corporate strategy: Corporate strategy is basically concerned with the
choice of businesses, products and markets. The following points will clarify the corporate strategy.
• It can also be viewed as the objective-strategy design of the firm.
• It is the design for filling the firm's strategic planning gap.
• It is concerned with the choice of the firm's products and markets; it actually denotes the changes /
additions / deletions in the firm's existing product-market postures. It spells out the businesses in
which the firm will play, the markets in which it will operate and the customer needs it will serve.
• It ensures that the right fit is achieved between the firm and its environment.
• It helps build the relevant competitive advantages for the firm.
• Corporate objectives and corporate strategy together describe the firm's concept of business.
What does corporate strategy ensure?
Corporate strategy in the first place ensures the growth of the firm and ensures the correct alignment
of the firm with its environment. It serves as the design for filling the strategic planning gap. It also
helps build the relevant competitive advantages.
Strategy is partly proactive and partly reactive:
A company's strategy is typically a blend of (1) proactive actions on the part of managers to improve
the company's market position and financial performance and (2) as needed reactions to
unanticipated developments and fresh market conditions.
The Dynamics of Competitive Strategy: Strategic thinking involves orientation of the firm’s internal
environment with the changes of the external environment. The economic and technical components
of the external environment are considered as major factors leading to new opportunities for the
organization and also closing threats. Similarly the broader expectation of the society in which the
organization operates is again an important factor to determine the competitive strategy. The
strengths and weaknesses of organizations are the internal factors, which determine the corporate
strategy.
Strategic Management: The term strategic management refers to the managerial process of forming a
strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and
then over a period of time initiating whatever corrective adjustments in the vision, objectives,
strategy, and execution are deemed appropriate. The overall objective of strategic management is two
fold:
(a) To create competitive advantage, so that the company can outperform the competitors in order to
have dominance over the market.
(b) To guide the company successfully through all changes in the environment.
Framework: The basic framework of strategic process can be described in a sequence of five stages
which are as follows:
• Stage one - Where are we now? (Beginning)
• Stage two: - Where are we want to be? (Ends)
• Stage three - How might we get there? (Means)
• Stage four - Which way is best? (Evaluation)
• Stage five - How can we ensure arrival? (Control)
Importance of Strategic Management: The major benefits of strategic management are:
• Strategic management helps organizations to be more proactive instead of reactive in shaping its
future.
• Strategic management is concerned with ensuring a good future for the firm.
• Strategic management serves as a corporate defence mechanism against mistakes and pitfalls.
• Strategic management provides framework for all the major business decisions of an enterprise.
• Over a period of time strategic management helps organization to evolve certain core
competencies and competitive advantages.
Strategic Decision Making: Decision making is a managerial process and function of choosing a
particular course of action out of several alternative courses for the purpose of accomplishment of the
organizational goals. The major dimensions of strategic decisions are given below:
• Strategic issues require top-management decisions.
• Strategic issues involve the allocation of large amounts of company resources.
• Strategic issues are likely to have a significant impact on the long term prosperity of the firm.
• Strategic issues are future oriented.
• Strategic issues usually have major multifunctional or multi-business consequences.
• Strategic issues necessitate consideration of factors in the firm’s external environment.
Strategic Management Model: The strategic management process is not as cleanly divided and neatly
performed in practice as the strategic management model suggests. Strategists do not go through the
process in lockstep fashion.
Every organization has a vision, mission, objectives, and strategy, even if these elements are not
consciously designed, written, or communicated. The answer to where an organization is going can be
determined largely by where the organization has been.
1.7 FEATURES OF STRATEGY
Business Strategy has following characteristics:
1. Involves Choice: Strategy involves the choices that decide the future, nature and direction of the
activities that have to be undertaken by the organization so as to achieve the goals and objectives.
2. Dynamic: A strategy can never be static. It may have to be changed or modified as per the changing
needs of the business and its environment. It’s all about survival til the end.
3. Top Level Management: Strategies are formulated by the top-level management of the company.
For the implementation of these strategies, the managers at the low level are expected to
act.
4. Strategy relates the firm to its environment: Strategy relates the firm to its environment
predominantly the external environment in all actions whether objective setting, or actions and
resources required for its realization. This highlights the systems approach of
management and treats an organization as part of the society which subsequently
gets affected by it.
5. Dependent on Internal/External factors: Strategy as discussed earlier is formulated in a dynamic
environment and hence, is the right combination of factors that are both internal and external to
the environment. The management will have to consider both when deciding upon any course of
action.
6. Action-oriented: Strategy is relative combination of different actions. Actions could be to meet a
particular situation, to solve a specific problem, or to accomplish a desirable objective. It may take
any form because for every situation differs and, therefore, requires a somewhat new or a different
approach.
7. Forward Looking: Strategy is future oriented. Any strategic action is needed when
encountered with a new situation, and so strategy is relevant only to the future. It has no relevance
to the past.
8. Tactical: Strategy is often confused with tactic by people but there is a difference between the two.
Strategies define goals to be achieved whereas tactics define the actions one needs to take in order
to achieve those set goals. For example, a strategy would be to double sales in a specific region
whereas a tactic would be to hire more salespeople in that region to attain that goal.
9. Measurable: If your goals are indistinct, you won’t know if you are achieving them or not. You can’t
manage what you can’t measure. When we set goals, we also have to set ways to measure them to
be certain that they are being achieved.
10. Actionable: Strategic goals are achievable through tactics. They are not dependent on factors you
cannot control. Example, an actionable goal would be to double sales revenue in comparison to
increasing the stock price by 30 percent because increasing the stock-price would be dependent on
the market.
11. Clear: Strategy should be formulated din clear and specific terms. Employees should understand
exactly what their organization’s strategy is so that is can be achieved successfully. A strategy
requires continuous and clear communication. It should guide the decisions and actions of the
management.
12. Unique: Strategy should be an upshot of innovative and creative thinking. It has to be something
new that is never tried before. If the strategy does not include any originality, there is a high
possibility that competitors will be already having comprehensive information about the strategy
employed. Thus, strategy should involve some creativity to make it unique and differentiate from
its competitors.
13. Confidential: Strategy should involve some secretive aspect in it which should be known only to
the top management of the organization. The secret element of the strategy will keep the
competitors inquisitive about the strategy.
1.8 NATURE AND IMPORTANCE OF BUSINESS POLICY & STRATEGY
Business Policy is considered as the study of functions and responsibilities of the senior management
related to those organizational problems which could affect the success or failure of the enterprise.
It deals with determining the future course of action that an organization needs to adopt and
with mobilizing the resources which would help the organization to achieve its vision. Strategic
Management and the role it plays in the success of business has been a subject of painstaking
research and study for a long period of time now. Strategic Management makes sure that goals are
set, crucial issues are outlined, time and resources are pivoted, internal environment is studied,
outcomes and results are agreed upon, and the organization gets ready for any change if required.
An organization is usually established with an objective in mind, and this objective outlines the
purpose for its existence. All the work carried out in an organization revolves around this particular
target, and it has to align its internal resources with the external environment in a way that goals are
achieved in reasonable time. Apart from quicker and effectual decision making, pursuing
opportunities and directing work, strategic management helps in minimizing costs, motivating
employees, working against threats, seeking opportunities, predicting apparent market trends, and
improving the overall performance of the organization.
IMPORTANCE OF BUSINESS POLICY & STRATEGIC MANAGEMENT
The significance of formulating strategy is evident from the fact that all managers try to prepare and
plan the activities over a long period of time. This is done in order to react to any changes which may
take place in the external or internal environment. It is concerned with actions to be taken which will
provide competitive advantage to the organization. Any company operating in the market,
regardless of its size, nature or type of business, should formulate a proper strategy to survive
for the longer period of time. By using a well-formulated strategy a company can not only gain
competitive advantage, but also it can become the market leader.
Strategy is foundation of the company’s success. It should be properly formulated, executed,
modified or changed constantly depending on the changing environment. Well-formulated
strategies create distinctive companies, helping the employees and stakeholders to set a clear division
between company and its competitors. Having a clear and focused strategy is vitally essential for the
success of any business, and without a properly-defined strategy, one may halt or fail altogether.
An efficient business policy and strategy is important because of the following reasons:
1. Provides a Framework for Proper Planning: Strategies provide the framework for plans by
channeling operating decisions and regularly predefining them. A well-articulated 3 to 5 year
long term view of the company serves to update the annual operating plan. The annual plan
then becomes the stepping stone toward the accomplishment of the longer term goals. If
strategies are formulated cautiously, it will lead to more reliable framework for operational
planning.
2. Provides Clarity in Direction: Strategies focus on direction of activities by clarifying what activities
are to be undertaken for achieving organizational objectives. They make the goals and objectives
more clear and specific. It helps in giving a clear, concise and strategically sound
direction to all the workers in the organization and also provides clarity as to how this will be
achieved by giving comprehensive and detailed action plans.
3. Defines Accountabilities: It defines clear lines of authority and accountability and set time limits for
attaining the expected results on the agreed predetermined objectives.
4. Increases Organizational Effectiveness: Strategies ensure organizational effectiveness in numerous
ways. It is not only essential that resources are put to the best of their efficiency but also that they
are put in a way which ensures their utmost contribution to the organizational objectives and
strategies ensure that resources are deployed in a way as specified.
5. Prioritizes and Aligns Activities: Strategic planning is about making choices, defining priorities,
mobilizing and allocating resources to strategic initiatives in order to achieve the desired results.
6. Provides a Framework for Ongoing Decision Making: In view of the fact that all decisions
must support the strategy, the strategy and the strategic initiatives become the reference point
for further decision-making.
7. Personnel Satisfaction: Strategies contribute towards organization effectiveness by providing
satisfaction to all the people associated with the organization. In companies where formal strategic
management process is followed, people are comparatively more satisfied as they are clear about
their roles, thereby reducing role conflict and role ambiguity, leading to more satisfaction.
8. Best use of Resources: Well designed strategies help the organization in making efficient and
optimum allocation and utilisation of resources. All the pros and cons of choosing a particular
course of action over others, is weighed carefully before committing to any decision.
Vision, Mission and Objectives
A strategic vision is a road map of a company’s future – providing specifics about technology and
customer focus, the geographic and product markets to be pursued, the capabilities it plans to
develop, and the kind of company that management is trying to create.
A company’s mission statement is typically focused on its present business scope – “who we are and
what we do”; mission statements broadly describe an organizations present capabilities, customer
focus, activities, and business makeup.
Objectives are organizations performance targets–the results and outcomes it wants to achieve. They
function as yardsticks for tracking an organizations performance and progress.
Strategic Levels in Organizations: An organization is divided into several functions and departments
that work together to bring a particular product or service to the market. There are three main levels
of management: corporate, business, and functional.
The corporate level of management consists of the chief executive officer (CEO), other senior
executives, the board of directors, and corporate staff. The role of corporate-level managers is to
oversee the development of strategies for the whole organization. This role includes defining the
mission and goals of the organization, determining what businesses it should be in, allocating
resources among the different businesses, formulating and implementing strategies that span
individual businesses, and providing leadership for the organization.
Business-level general managers are concerned with strategies that are specific to a particular
business. The strategic role of these managers is to translate the general statements of direction and
intent that come from the corporate level into concrete strategies for individual businesses.
Functional-level managers are responsible for the specific business functions or operations (human
resources, purchasing, product development, customer service, and so on) that constitute a company
or one of its divisions. Thus, a functional manager's sphere of responsibility is generally confined to
one organizational activity.