BUSINESS POLICY AND
STRATEGIC MGMT
By-
Rutvi Umrigar
Chapter-1
Introduction to Business
Policy and Strategy
Concept of Strategy
 Thinking Strategically:
The Big Strategic Questions
Where are we now?
2. Where do we want to go?
 Business(es) to be in and market positions to
stake out
 Buyer needs and groups to serve
 Outcomes to achieve
3. How will we get there?
 A company’s answer to “how
will we get there?” is its strategy
 Consists of the combination of
competitive moves and business
approaches used by managers to run the
company
 Management’s “game plan” to
 Attract and please customers
 Stake out a market position
 Compete successfully
 Grow the business
 Achieve targeted objectives
 A strategy is a unified, comprehensive,
and integrated plan that relates the
strategic advantages of the firm to the
challenges of the envt.
 It is designed to ensure that the basic
objective of the enterprise are
achieved through proper execution by
the org.
 A strategy begins with a concept of
how to use the resources of the firm
most effectively in a changing envt.
Strategy as a game plan
 It is similar to the concept in sports of
a game plan.
 Before a team goes onto the field,
effective coaches examine a
competitor’s past plans and strengths
and weaknesses.
 Then they look at their own team’s
strengths and weaknesses.
 The objective is to win the game with
minimum of injuries.
The Hows That
Define a Firm's Strategy
 How to please customers
 How to respond to changing
market conditions
 How to out compete rivals
 How to grow the business
 How to manage each functional piece of the
business and develop needed organizational
capabilities
 How to achieve strategic and financial
objectives
Striving for
Competitive Advantage
 To achieve sustainable competitive
advantage, a company’s strategy usually
must be aimed at either
 Providing a distinctive product or service or
 Developing competitive capabilities rivals can
not match
 Achieving a sustainable competitive
advantage greatly enhances a company’s
prospects for
 Winning in the marketplace and
 Realizing above-average profits
 What separates a powerful
strategy from an ordinary
strategy
 is management’s ability to forge a
series of moves,
 both in the marketplace and
internally, that
 produces sustainable competitive
advantage!
“Strategy is a course of action
through which an organization
relates itself with the environment
so as to achieve the objectives.”
1.
Scope
2.
Mission and objectives
3.
Identification of substantial
competitive advantages
4.
Organization
5.
Resource development
Strategic Approaches to Building
Competitive Advantage
 Strive to be the industry’s low-cost
provider
 Out compete rivals on a key
differentiating feature
 Focus on a narrow market niche, doing a
better job than rivals of serving the
unique needs of niche buyers
 Develop expertise, resource strengths,
and capabilities not easily imitated by
rivals
A Company’s Strategy Is Partly
Proactive and Partly Reactive
Chapter-2
Conceptual Foundation
in Strategic
management
 Definition “Strategic
Management”
 It is a stream of decisions and actions which leads to the
development of an effective strategy or strategies to help
in achieving corporate objectives.
 It is defined as the set of decisions and actions in
formulation and implementation of designed strategy to
achieve the goal of the organization – Pearce and
Robbinson
 It is primarily concerned with relating the organization to
its environment, formulating strategies to adapt to that
environment, and assuring that implementation of
strategies takes place - Steiner
Benefits of Strategic Management
1.
2.
3.
4.
5.
6.
7.
Financial Benefits
Offsetting uncertainty (in changing
environment)
Clarity in direction & Objectives
Improve Efficiency and effectiveness of the
Organization
Personnel satisfaction
Better delegation, co-ordination, monitoring ,
performance evaluation and control
Searching and improving upon competitive
advantage
Limitation of Strategic Management
1.
2.
3.
4.
5.
Complex and dynamic Environment
Rigidity of Strategist
Inadequate focus and appreciation to
Strategic Management
Implementation limitation (Resources,
Improper timing)
Vague and general objective, Lack of
communication of objective
Strategic Management Process
Strategist
Mission & Objectives
The General Environment
Industry & International Environment
Analysis
Internal Environment
Generic Strategy alternatives
Strategic Variation
Choice
Strategy Choice
Resources and Structure
Policies, Plans and Administration
Evaluation and Control
Implementation
 Vision
Vision reflects a desired future
 “Where we are going?”
 It gives idea about Border sense of
the business
Mission




Mission Shows existence of the business
“Who we are?” and “What we Do?”
It is a narrow sense of the business
 Objectives



Objective deals with reasons of existence
“Why We are in Business?”
It is further narrow the business sense
Chapter- 5
Strategy Alternatives
Strategic Management Process
Strategist
Mission & Objectives
The General Environment
Industry & International Environment
Analysis
Internal Environment
Generic Strategy alternatives
Strategic Variation
Choice
Strategy Choice
Resources and Structure
Policies, Plans and Administration
Evaluation and Control
Implementation
 You have reexamined ideal goals in
light of the expected outcomes of
pursuing the existing strategy.
 As a result, u should be in a position
to consider the underlying potential
for a gap between expected and ideal
performance outcomes.
 From the diagram, u have completed
the analysis and diagnosis phase of
the SMP and are ready to begin the
choice phase.
 This phase consist of 2 activities:
 1. the generation of a reasonable
no.of strategic alternatives that will
help to fill the gaps matching the
ETOP and SAP.
 2. The choice of a strategy to reduce
the gaps.
 We have to see how the strategic
decision makers generate alternatives
strategies to fill the gaps found when
the results of the 2 profiles and the
firm’s goals are compared.
 Relative to the gap analysis, we start
with the current strategy.
 If the gap is small (on the basis of the
analyses of goals, external factors,
internal factors), then we assume
that the current strategy is adequate
and little or no change is required.
 If the gap increases (threats,
opportunities, strengths, weaknesses
or goal changes weaknesses create
gap) then strategy alternatives to
close the gap need to be considered.
 By comparing the ETOP and SAP, u
will acquire clues about the nature of
strategic alternatives to close any
gaps.
 The alternatives for change are being
generated with the perspective of
improving performance by taking
action to close performance gaps
expected in the future.
Who are the generator of strategic
alternatives:
 In a corporation the primary
generator of strategic alternatives is
the top manager, and in the multipleSBU firm, the primary generators are
the SBU top managers and the
corporate top manager.
 Lower level managers are also
involved to the extent that they
prepare proposals for consideration
by top managers.
 For instance, an R&D unit may
propose that additional resources be
allocated for the development of a
new product.
 Functional level managers are also
involved to the extent that plans to
implement strategies are considered
as part of the strategy formulation
process, and strengths and
weaknesses coming from functional
levels are evaluated by these
managers as inputs to the total
process.
Generic strategy Alternatives
1.
2.
3.
4.
Stability Strategy
Expansion Strategy
Retrenchment Strategy
Combination Strategy
Stability Strategy:
 A Stability Strategy is a strategy that
a firm pursue when:
 1. It continues to serve the public in
the same product or service, market,
and function sectors as defined in its
business definition, or in very similar
sectors.
 2. Its main strategic decisions focus
on increment improvement of
functional performance.
 Stability strategy are implemented by
“steady as it goes” approaches to decisions.
 Few major functional changes are made in
the product or service line, markets, or
functions.
 In an effective stability strategy, a company
will concentrate its resources where it
presently has or can rapidly develop
meaningful competitive advantage in the
narrowest possible product-market function
scope consistent with its resources and
market requirement.
 A stability strategy may lead to
defensive moves such as taking legal
action or obtaining a patent to reduce
competition.
 Stability usually involves keeping
track of new developments to make
sure the strategy continues to make
sense.
 Note that Stability approach is not a
“do nothing” approach; nor does it
mean that goals such as profit growth
are abandoned.
 The stability strategy can be designed
to increase profits through such
approaches as improving efficiency in
current operations.
 This strategy is typical for firms in a
mature stage of development, or
mature product-market evolution.
Why Do Companies Pursue a
Stability Strategy?
 A no. of explanations can be offered
to support stability:
1. The firm is doing well or perceives
itself as successful. Mgmt does not
always know what combination of
decisions is responsible for this.
So, “we continue the way we always
have around here.”
2. A Stability Strategy is less risky.
3. It is easier and more comfortable for
all concerned to pursue a stability
strategy.
4. Too much expansion can lead to
inefficiencies.
5. The envt is perceived to be relatively
stable, with few threats to cause
problems or few opportunities the
firm wishes to take advantage of it.
Expansion Strategy:
 An expansion strategy is a strategy
that a firm pursue when:
1. It serves the public in additional
product or service sectors or adds
markets or functions to its definition.
2. It focuses its strategic decisions on
major increases in the pace of
activity within its present business
definition.
 A firm implements this strategy by
redefining the business- either adding
to the scope of activity or
substantially the efforts of the current
business.
 Expansion is usually thought of as
“the way” to improve performance.
Why Do Companies Pursue
Expansion Strategies?
1. Many executives equate expansion
with effectiveness.
2. Some believe that society benefits
from expansion.
3. Managerial motivation
4. External pressure from stakeholders
or securities analysts.
Retrenchment Strategies:
 A Retrenchment Strategy is pursued
by a firm when:
1. It sees the desirability of or necessity
for reducing its product or services
lines, markets or functions.
2. It focuses its strategic decisions on
functional improvement through the
reduction of activities in units with
negative cash flows.
 A firm could also reduce its functions.
 E.g.,a firm may choose to sell most or
all of its output to a single customer.
 Retrenchment is frequently used
during the decline stage of a business
when it is considered possible to
restore profitability.
Why Do Companies Pursue
Retrenchment Strategy?
 This strategy is hardest to pursue.. it goes
against the brains of most strategist.
 And it implies failure.
 A few reasons are as follows:
1. The firm is not doing well or perceives
itself as doing poorly.
2. The firm has not met with its objectives by
following one of the other generic
strategies, and there is a pressure from
stakeholders, customers, or others to
improve performance.
3. The envt is seen to be so threatening
that internal strengths are insufficient
to meet the problems.
4. Better opportunities in the envt are
perceived elsewhere, where a firm’s
strengths can be utilized.
Any strategy, if chosen at the right time
and implemented properly, will be
effective.
 The retrenchment strategy is the best
strategy for the firm which has tried
everything, has made some mistakes,
and is now ready to do something
about its problems.
 The more serious the problems the
more serious the retrenchment
strategy needs to be.
 It is the hardest strategy for the
business to follow.
 It implies that someone or something
has failed, and no one wants to be
labeled a failure.
 But retrenchment can be used to
reverse the negative trends and set
the stage for more positive strategic
alternatives.
Combination Strategy
 A combination strategy is a strategy
that a firm pursues when:
1. Its main strategic decisions focus on
the conscious use of several grand
strategies (S,E,R) at the same time
(simultaneously) in several SBUs of
the company.
2. It plans to use several grand
strategies at different future times
(sequentially).
 With combination strategies, the
decision makers consciously apply
several grand strategies to different
parts of the firm or to different future
periods.
 The logical possibilities for a
simultaneous approach are stability in
some areas, expansion in others;
stability in some areas, retrenchment
in others; retrenchment in some
areas, expansion in others; and all 3
strategies in different areas of the
company.
 Why Do Companies pursue a
Combination Strategy?
 A combination strategy is not an easy
strategy to use.
 It is much easier to to keep a firm in
one set of values or one strategy at a
time.
 But when a company faces many envt
and these envt are changing at
different rates, and the company’s
products are in different stages of the
life cycle, it is easy to visualize
conditions under which a combination
strategy makes sense.