Business Policy

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Business Policy

• Strategy Formulation
• Topic 1 The Concept of Strategy and the
  Strategic Management Process

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Lecture Plan

• What is a strategy?
• The strategic management process
• Why strategic management is an ongoing process
• Who performs the tasks of SM?
• Benefits of a strategic approach

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What is a strategy?

• determination of the basic long-term goals and
  objectives of an enterprise, and the adoption of
  courses of action and the allocation of resources
  necessary for carrying out these goals
• Chandler
• a commitment to undertake one set of actions
  rather than another
• Oster

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What is a Strategy? (2)

• ...the game plan management has for
  positioning the company... entails choice among
  alternatives and signals organisational
  commitment to specific markets, competitive
  approaches, and ways of operating.
• Thomson and Strickland

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The strategy pyramid
Corporate
Influence
Business
Function
Operating

• Uniting the strategy-making effort through
  vertical and horizontal linkages.
• Co-ordination through mutually reinforcing
  vision, objectives strategies.

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Different Levels of Strategy

• Corporate - what business?
• Business - how to compete in each business
• Functional - in support of business level

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The Strategic Management Process
Analyze Environment
Identify opps / threats
Identify current mission, objectives strategies
Formulate Strategies
SWOT ANALYSIS
Implement Strategies
Identify strengths weaknesses
Analyze Resources
Evaluate Results
Management, Robbins, S. Coultar, M. 1996p. 259
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Strategy Making - Process or Event?

• Strategy making is an ongoing process
• Boundaries between tasksconceptual not real
• Managers have many other responsibilities
• Crafting/ implementing happens erratically

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Intended and Adaptive Strategy

• strategy is a combination of planned actions and
  on-the-spot adaptive reactions to freshly
  developing industry and competitive events.
• Respond to external/internal environment
• Emergent Strategy

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Who Performs the five tasks?

• CEO and other managers
• Strategic planners
• Board of directors

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The Three Strategy Making Tasks

• Develop a strategic vision/ business mission
• Set objectives
• Craft a strategy

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Chesire Puss she (Alice) began ... Would you
please tell me which way I ought to go from
here That depends on where you want to get
to, said the cat. Lewis Carroll
If you dont know where youre going, any old
road will take you there. Anonymous
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• Defines the current boundaries
• Defines the business position
• -Who are we?
• - What do we do?

Mission
Present
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What Business are you in Coca Cola

• soft drinks? Competition is Pepsi,
  Finches
• beverages? Competition is tea,
  coffee, softdrinks
• thirst -quenching?
• Competition is water all liquids!

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Broad / Narrow Business Definition
Broad Narrow Beverages Fizzy
drinks Childrens entertainment Toys for
toddlers Furniture Waterbeds Travel River
cruises in Egypt
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Vision

• Prepares company for the future
• Defines the business position
• Who are we?
• What do we do?
• Defines target market
• Establishes long-term direction
• Where are we going?
• Not simply making a profit

Future
Importance of COMMUNICATING the vision
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Objectives

• Strategic vs. Financial?

• Long range vs. short range?

• Challenging but achievable

• Measurable

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Strategic vs. financial objectives?

• Strategic
• focus is on competitors
• eg. becoming the top company in the industry
• Financial
• focus is on financial performance
• eg. acceptable profit margin/ ROI
• Both are neccessary
• company must survive in both short and long term

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Long vs. Short term?

• Long term forces
• early action
• long term implications considered
• Short term encourages
• speedy progress

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Challenging but Achievable

• objectives must be realistic
• but should stretch
• funds/ resources must be available to execute the
  strategy

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Measurable

• Objectives must be measureable
• eg. growth in market share of 5
• Deadlines must be set
• eg. by December next
• You cannot manage what you cannot measure

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Objectives needed at all levels

• Parts supporting the whole
• Top-down objective-setting
• - cohesion
• - leadership

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Corporate Strategy

• Builds portfolio of businesses
• Harnesses synergies between businesses
• Eg pepsi cola sold via restaurant chain
• Makes resourcing/ investment decisions
• Reviews/ unifies business unit strategies

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Business Strategy

• Aims to strengthen long-term competitive position
  build sustainable competitive advantage
• Build competencies and capabilities
• Respond to changing circumstances
• Unify functional strategies

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Functional Strategy

• Support the business strategy
• Eg. Bank more automated transactions
• Defined for a function of the business
• Eg. IT function ensures 99 up-time for atms by
  having superior software and backup/ recovery
  mechanisms

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Operational strategy

• Lower level units of the organisation
• Specific means and approaches for these units
• Eg. Software development group trains people in
  use of GUI/ client-server development

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Approaches to performing the strategy making tasks

• Master strategist manager is chief architect
• Delegate to others
• Collaborative approach
• Champion approach

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Factors that shape strategy
External
Industry Attractive- ness
Society political regulatory
Opportunity threat
Craft a Strategy
Evaluation Choice
Companys strategic situation
Strengths weakness
Manager values / ambitions
Culture
Internal
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Societal, Political, Regulatory Conditions

• Limit the strategic actions that a company can or
  should take
• May cause company to change strategy
• anti-smoking lobby (direct mkg/advertising)
• lead-free petrol (eg Pura)
• recycling

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Industry Attractiveness

• Strategy must be matched to industry and
  competitive conditions eg.
• technology shift
• change in cost structure of industry

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Market Opportunities and Threats

• Be open to opportunities
• Aim at capturing best growth opportunities
• Defend against threats to well-being and future
  performance

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Organisational Strengths and Weaknesses

• Strategy must be well-matched to the companys
  strengths
• strategy should be grounded in what company is
  good at doing
• perilous to depend on what its not good at

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Managers Values, Beliefs and Ambitions

• Management play a pivotal role
• Strong leadership builds commitment
• Management communication - buy-in

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Strategy formulation deciding what to do

• what you might do opportunity
• what you can do resources
• what youd like to do values/ ambitions
• what you ought to do ethics

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Tests for a good strategy

• Goodness of fit test
• matches well the companys situation
• internal
• external
• Competitive advantage test
• leads to sustainable competitive advantage
• Performance test
• leads to superior performance
• profitability
• long term business/ market position strength

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Benefits of a Strategic Approach

• Direction
• Adaptable / in-tune with environment
• Basis for budget/resource allocation
• Unifies decisions across organisation
• Encourages pro-active management
• Requires strategic thinking rather than
  gut-feel/drift