A S S I G N M E N T

O n

“Business Policy and Strategic Management”

SUBMITTED IN PARTIAL FULFILEMENT OF THE REQUIREMENTS FOR THE

AWARD OF THE DEGREE OF

Master of Business Administration

By

Mohammad Kamran Saeed

Under the Supervision of

Mr. Vikas Mahalawat

DEPARTMENT OF BUSINESS ADMINISTRATION

MODERN INSTITUTE OF TECHNOLOGY & RESEARCH CENTRE
ALWAR
2009
 1) What is Business Policy? Differentiate Business Policy and Strategic
Management.

Ans. Business Policy is the term traditionally associated with the course in
business schools devoted to integrating the educational program of these
schools which is also the basic paradigm to understand what we call strategic
management today.
 As we have seen in the 40’s and 60’s business policy, known as ‘Pre
Strategy’ stage addressed the then problems of business.
 The corporate & Top management was responsible for all policy
making and once the policies were made they would standardize and
specify the behavior of functional departments.
 Strategy was view as an implicit concept, not formally laid down and
it was rarely analyzed, changed or modified once made.
 Budgets control system, management by objectives and forecasting
techniques were generally used for policy making in this phase.
Strategic Management
Strategic Planning had four major short comings:-
 It did not differentiate between the different level of strategy –
corporate, business and functional in divisionalized companies.
 It was unclear about the nature of relationships between strategy and
the operation of various functional areas business.
 It was also incomplete in its discussion of the role of general
management.
 There was a disagreement about whether strategy included both goals
and action plans or only action plans.

Environmental Changes
(Industrial Development)

‘Second Generation’
Strategic Management
1980’s
(still evolving)
‘First Generation’
Strategic Planning
1960’s – 80’s
Planning
Business Policy
1930’s

Evolution of Business Policy and Strategic Management

 Difference between Business Policy and Strategic Management

Business Policy Strategic Management

 Traditionally used for decision  Current perspective of strategic
making thinking
 Involved only corporate  General management and
planning mangers at all levels
 First generation planning  Second generation planning
 Simple and stable environment  Complex turbulent environment
(past) (present)
 When business were single line  In multiple business units and it
business. No distinction makes a distinction between
between the different level of different levels of strategic
strategic
 Unidimensional in approach  Multi-dimensional in approach,
take into account a number of
issues
 Generally, the tools and  Strategic, structure, vision
techniques developed were became important and ideas
those relating to operational relating to these concepts
efficiency evolved.

2) Explain the process of Strategic management.

Ans.
 Vision formulation which leads to the statement of the Mission
 The mission then converted into performance Objectives.
 To achieve objectives you develop Strategies
 Strategy implementation
 Evaluation of performance

a) The vision formulation which leads to the statement of the Mission

Mission * What is business?

* What will be the business?
* It established long-term direction
* It needs to use simple terminology
* It needs to be inspirational buy in
* Recognition of threats & opportunities
* Entrepreneurial
 Three Components of the mission statement

* The needs to be served by the company

* The targeted customer group
* How the company will provide the product/service

b) The mission is then converted into performance objectives

* Measurable statements
* Specified performance
* Specified time
* Short-range objectives
* Long-range objectives
* Top-down rather than bottom-up

Two types of performance yardsticks

* Financial objectives
* Strategic objectives

c) To achieve objectives you develop Strategies

* Action steps
* The concepts of unified and consistent strategies
* The moves and approaches used to achieve objectives
* Dynamic
* Continual review and refinement
* Adjust to internal and external forces

Levels of strategies

* Corporate game plan for a diversified company

* Business game plan for single business
* Functional strategy initiatives of one part of a
business.
* Operating initiatives of key operating units

Factors affecting strategies

* Society forces
* Political and regulatory forces
* Citizenship considerations
* The industry and competitive conditions
 * Opportunities and threats
* Organizational strengths and weaknesses
* Ethical considerations
* Personal managerial ambitions
* Company culture

Strategy making styles

* Master Strategist self- explanatory

* Delegate-to-Others bottom-up
* Collartorative middle approach
* Champion bottom up with manager interest

d) Strategy Implementation

* making it happens
* structuring an organization
* budgeting
* motivating
* creating reward structures
* creating work environment
* Information & reporting systems
Who does the strategy making and implementing?

ALL MANAGERS

e) Evaluation of performance

* review process
* adjust mission
* adjust objectives
* adjust strategies
* initiate corrective measures

3) Write Short notes on:

a.) Michael Porter’s Contribution to Strategy management

Ans. Michael Eugene Porter (born 1947) is a University Professor at

Harvard Business School, with academic interests in management and
economics. His work spans three broad areas: competition and company
strategy (five forces, value chain), competition and economic development
(clusters, diamond model), and competition and societal issues (health care,
environment.)

It uses concepts developed in Industrial Organization (IO) economics to derive

five forces which determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this context refers to the overall
industry profitability. An "unattractive" industry is one where the combination
of forces acts to drive down overall profitability. A very unattractive industry
would be one approaching "pure competition".

Porter's five force include three forces from 'horizontal' competition: threat of
substitute products, the threat of established rivals, and the threat of new
entrants; and two forces from 'vertical' competition: the bargaining power of
suppliers, bargaining power of customers.

According to Porter, the five forces model should be used at the industry level;
it is not designed to be used at the industry group or industry sector level. An
industry is defined at a lower, more basic level: a market in which similar or
closely related products and/or services are sold to buyers. Firms that compete
in a single industry should develop, at a minimum, one five forces analysis for
its industry.

THE THREAT OF SUBSTITUTE PRODUCTS

The existence of close substitute products increases the propensity of customers

to switch to alternatives in response to price increases (high elasticity of
demand).

 buyer propensity to substitute

 relative price performance of substitutes
  buyer switching costs
 perceived level of product differentiation

THE THREAT OF THE ENTRY OF NEW COMPETITORS

Profitable markets that yield high returns will draw firms. This results in many
new entrants, which will effectively decrease profitability. Unless the entry of
new firms can be blocked by incumbents, the profit rate will fall towards a
competitive level (perfect competition).

 the existence of barriers to entry (patents, rights, etc.)

 economies of product differences
 brand equity
 switching costs or sunk costs
 capital requirements
 access to distribution
 absolute cost advantages
 learning curve advantages
 expected retaliation by incumbents
 government policies

THE INTENSITY OF COMPETITIVE RIVALRY

For most industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete
in non-price dimensions such as innovation, marketing, etc.

 number of competitors
 rate of industry growth
 intermittent industry overcapacity
 exit barriers
 diversity of competitors
 informational complexity and asymmetry
 fixed cost allocation per value added
 level of advertising expense
 Economies of scale
 Sustainable competitive advantage through improvisation
 THE BARGAINING POWER OF CUSTOMERS

Also described as the market of outputs. The ability of customers to put the firm
under pressure and it also affects the customer's sensitivity to price changes.

 buyer concentration to firm concentration ratio

 degree of dependency upon existing channels of distribution
 bargaining leverage, particularly in industries with high fixed costs
 buyer volume
 buyer switching costs relative to firm switching costs
 buyer information availability
 ability to backward integrate
 availability of existing substitute products
 buyer price sensitivity
 differential advantage (uniqueness) of industry products
 RFM Analysis

THE BARGAINING POWER OF SUPPLIERS

Also described as market of inputs. Suppliers of raw materials, components,

labor, and services (such as expertise) to the firm can be a source of power over
the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively
high prices for unique resources.

 supplier switching costs relative to firm switching costs

 degree of differentiation of inputs
 presence of substitute inputs
 supplier concentration to firm concentration ratio
 employee solidarity (e.g. labor unions)

b.) Strategy Planning

Ans. Strategic planning is an organization's process of defining its

strategy, or direction, and making decisions on allocating its resources to pursue
this strategy, including its capital and people. Various business analysis
techniques can be used in strategic planning, including SWOT analysis
(Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis
(Political, Economic, Social, and Technological analysis) or STEER analysis
(Socio-cultural, Technological, Economic, Ecological, and Regulatory factors)
and EPISTEL (Environment, Political, Informatic, Social, Technological,
Economic and Legal).
Strategic planning is the formal consideration of an organization's future course.
All strategic planning deals with at least one of three key questions:

1. "What do we do?"
2. "For whom do we do it?"
3. "How do we excel?"

In business strategic planning, the third question is better phrased "How can we
beat or avoid competition?". (Bradford and Duncan, page 1).

In many organizations, this is viewed as a process for determining where an

organization is going over the next year or more -typically 3 to 5 years,
although some extend their vision to 20 years.

In order to determine where it is going, the organization needs to know exactly

where it stands, then determine where it wants to go and how it will get there.
The resulting document is called the "strategic plan."

It is also true that strategic planning may be a tool for effectively plotting the
direction of a company; however, strategic planning itself cannot foretell
exactly how the market will evolve and what issues will surface in the coming
days in order to plan your organizational strategy. Therefore, strategic
innovation and tinkering with the 'strategic plan' have to be a cornerstone
strategy for an organization to survive the turbulent business climate.

Vision, Mission, Value

Vision: Defines the desired or intended future state of an organization or

enterprise in terms of its fundamental objective and/or strategic direction.
Vision is a long term view, sometimes describing a view of how the
organization would like the world in which it operates to be. For example a
charity working with the poor might have a vision statement which read "A
world without poverty"

Mission: Defines the fundamental purpose of an organization or an enterprise,

basically describing why it exists and what it does to achieve its Vision. A
corporate Mission can last for many years, or for the life of the organization. It
is not an objective with a timeline, but rather the overall goal that is
accomplished over the years as objectives are achieved that are aligned with the
corporate mission.

Values: Beliefs that are shared among the stakeholders of an organization.

Values drive an organization's culture and priorities.
c.) Modes of Strategic Decision Making
Ans. There are four modes of strategy decision making: rational, political,
emotional and anarchy.

The Rational Mode.

The first decision making mode is rational. When executives in a company
like McDonald’s come together to decide where to place new restaurants in
their U.S. markets, they make decisions in a rational mode. Their goal
ambiguity and uncertainty is low. Comparatively speaking, their company
faces a slow-changing environment. By working through traffic flow data,
real estate prices, customer demographics and competitor analysis, they make
a confident yes-no decision.
The Rationale mode represents an ideal, an organization at its best in terms of
knowing its environment. The problems have been defined, the courses of
actions have been weighed, and the outcomes have been predicted. All that is
left is to apply group cognitive ability to maximize profit. If you are a
manager or group member in this mode, you already know how to shine—
you display your technical expertise, whether in engineering, architecture or
design, and refine the done-deal. Often when you are in the Rational mode,
the premises by which the decisions have been framed are unquestioned and
even unquestionable.

The Political Mode

When questions begin to arise over how you should allocate limited
resources, decision making often shifts to a Political mode. In contrast to one
choice that R&D, marketing and engineering must reach alignment over, the
issue under consideration has several options and is ambiguous. Rather than
act in a problem search mode as in the previous model, a group in the
Political mode faces a value search.
The Emotional Mode
The third mode of decision making is the Emotional mode. This mode has
often been overlooked in research, as emotions are usually thought of as
irrational or as clouding judgment. Yet recent neurobiological studies
“establish that emotion is indispensable in rational decision making”. Unlike
the Rational and Political mode, the Emotional mode is best suited when
groups are operating in a changing environment and face high technical
uncertainty.
The benefit of this mode is it allows groups to draw upon their social and
psychological reserves to make decisions beyond the facts. The danger in this
mode is groupthink, or risky shift—that is, members making a decision
together by emotion they would not make as individuals. Surprisingly, the
best corrective to the downsides of the Emotional mode is greater exercise of
emotional intelligence.

The Anarchy Mode

If a group not only faces external uncertainty, but also internal conflict, the
decision making mode becomes anarchy. This evocative term describes how
organizations are often mixing bins of randomly mixed problems,
opportunities and solutions. In this kind of organized anarchy decisions don’t
follow linear processes or unidirectional maps. In reality, this mode says very
little about the process of decision making only that order does come forth
from chaos.

4) Managers are constantly involved in making decisions. What types of

decisions are made by managers in the organization?
Ans. Decision making refers to the thought process that is involved while
choosing the most logical choice from among the options available.
Making the right decision according to the complexity of the situation is
what sets an average individual separate from the rest. Although, the
ability of making the correct decision within a short span of time is a
highly valued trait, one cannot follow a set pattern of deciding on a
course of action at all points of time. Hence, there are different types of
decision making that we all resort to depending upon the situation at
hand.

Different Types of Decision Making

The following are the most common types of decision making styles that
a manager in a business or even a common man might have to follow.
Irreversible: These decisions are permanent. Once taken, they can't be
undone. The effects of these decisions can be felt for a long time to come.
Such decisions are taken when there is no other option.

Reversible: Reversible decisions are not final and binding. In fact, they
can be changed entirely at any point of time. It allows one to
acknowledge mistakes and fresh decisions can be taken depending upon
the new circumstances.

Delayed: Such decisions are put on hold until the decision maker thinks
that the right time has come. The wait might make one miss the right
opportunity that can cause some loss, specially in the case of businesses.
However, such decisions give one enough time to collect all information
required and to organize all the factors in the correct way.

Quick Decisions: These decisions enable one to make maximum of the

opportunity available at hand. However, only a good decision maker can
take decisions that are instantaneous as well as correct. In order to be able
to take the right decision within a short span of time, one should also take
the long-term results into consideration.

Experimental: One of the different types of decision making is the

experimental type in which the final decision cannot be taken until the
preliminary results appear and are positive. This approach is used when
one is sure of the final destination but is not convinced of the course to be
taken.

Trial and Error: This approach involves trying out a certain course of
action. If the result is positive it is followed further, if not, then a fresh
course is adopted. Such a trail and error method is continued until the
decision maker finally arrives at a course of action that convinces him of
success. This allows a manager to change and adjust his plans until the
final commitment is made.

Conditional: Conditional decisions allow an individual to keep all his

options open. He sticks to one decision so long as the circumstances
remain the same. Once the competitor makes a new move, conditional
decisions allow a person to take up a different course of action.

Types of Decision Making for Leaders

A leader gives direction to people to follow. He is responsible for

ensuring that his decision provides the right direction to the organization.
Be it in a business or in other organizations, decision making is an
important component of leadership skills. The different types of decision
making that a leader typically encounters are:

Authoritative: In authoritative type of decision making the leader is the

sole decision maker which subordinates follow. The leader has all the
information and expertise required to make a quick decision. It is
important that the leader is a good decision maker as it is he who has to
own up to the consequences of his decision. Though effective, in case the
leader is an experienced individual, it can harm the organization if the
leader insists on an authoritative type of decision making even when there
is expertise available within the team.

Facilitative: In facilitative type of decision making, both the leader and

his subordinates work together to arrive at a decision. The subordinates
should have the expertise as well as access to the information required to
make decisions. Such an approach could be useful when the risk of wrong
decision is very low. It is also a great way of involving and encouraging
subordinates in the working of the organization.

Consultative: As the name suggests, consultative decisions are made in

consultation with the subordinates. However, the fact remains that unlike
in the facilitative decision making style, in consultative decision making
it is the leader who holds the decision making power. A wise leader tends
to consult his subordinates when he thinks that they have valuable
expertise on the situation at hand.

Delegative: As per the term, the leader passes on the responsibility of

making decisions to one or more of his subordinates. This type of
 decision making is usually adopted by the leader when he is confident of
the capabilities of his subordinates.

It would have been so good had there been a universal model for decision
making. However, due to the dynamic nature of conditions, be it our
workplace or our personal lives, we have to resort to different types of
decision making.

5) Explain Components of Strategic Management.

Ans. Strategic management treats the enterprise as an information producer, and

employees are valued for their creativity. Conversely, command-and-control
management (your father’s management) treats the enterprise as a machine,
with employees viewed as replaceable parts.

Strategic management involves setting specific goals, aligning those goals with
the organization’s values, vision and mission, supporting those goals through
your day-to-day activities, and finally measuring the success of the overall plan.

Components of a Strategic Management