business policy(batch 15) updated

8/8/2019 Business Policy(Batch 15) Updated

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Business Policy


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Lesson Plan

Session 1: Introduction

Session 2:Strategy overview(origin, why strategic planning, a brief

history, changes over time, evolution, the Indian scenario)

Session 3: Caselet discussion: Shaping and Managing Future;

Analysis of internal environment; SAP

Session 4: A strategic planning model, analysis of external

environment, micro and macro environments, E-TOP

Session 5:Value chain analysis; Questions to ask for generating

strategic alternatives; grand strategies

Session 6:Quiz;Grand strategies contd.(Stability & Retrenchment )

Session 7:Grand strategies contd.(Growth & Combination)

Session 8: Caselet discussion: Saatchi & Saatchi

Session 9:Choosing the strategy: Business definition; inputs from

internal environment analysis; SWOT; vision, goal/purpose, mission


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Contd.

Session 10:Test paper I; Objectives, values, organizational culture

and levels of strategy

Session 11:Strategic tools: SWOT; TOWS matrix; customer -needmatrix;

Session 12: Quiz; competitor analysis and generic strategies;

Portfolio approaches: BCG Matrix GE Nine-Cell grid ;Shell matrix

Session 13:Case discussion: Strategic pursuits of two family-managed Companiesa comparison between Bajaj Auto Ltd &

Reliance Industries Ltd

Session 14:Case discussion contd.

Session 15:Industry analysis tools; Five-forces model Session 16: Arthur D.Littles Life Cycle Approach

Session 17: Quiz; Other approaches-Core competency and strategic

intent

Session 18: Case discussion;


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Contd.

Session 19: Case discussion contd; Balanced scorecard

Session 20: BSC contd; Strategy mapping;

Session 21:Blue ocean strategy

Session 22:Test paper II; Strategic control-premise control and

strategic surveillance

Session 23:Special alert control; Control processes:

Session 24: Caselet discussion; introduction to functional strategies;

marketing strategy; financial strategy

Session 25:Production operations strategy; logistics strategy; R&D

strategy; HR strategy

Session 26:Quiz;Criticisms on conventional approaches to strategy

Session 27:Critical review of conventional approaches

Session 28:Case discussion: Blue Ocean Strategy or Old Wine In New

Bottle?


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Contd.

Session 29: Case discussion contd; Practitioners contribution- Jack

Welch & Dhirubhai

Session 30: Test Paper III

Session 31:Practitioners contribution to strategy- Sam Walton &

Roberto Goizueta

Session 32:A review of the strategic approaches & processes

Session 33:Winding up


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Teaching methodology

Lecture, cases, presentations, quizzes and home assignments

Prescribed text-book

Strategic Management: An Integrated Approach by Charles W. Hill and

Gareth R. Jones, Biztantra, New Delhi

Reference books

1.Arthur A.Thompson Jr,A.J.StricklandIII,John E.Gamble and Arun

K.Jain, Crafting And Executing Strategy, Tata McGraw Hill, New Delhi

2.Michael E. Porter, Competitive Strategy, Free Press, New York

3.John A.Pearce II and Richard B.Robinson,Jr, Strategic Management:

Formulation, Implementation andControl, Tata McGraw Hill, New

Delhi4.William F. Glueck and Lawrence R. Jauch, Business Policy and

Strategic Management, McGraw Hill, New York


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Evaluation criteria

Attendance : 5%

Quizzes : 5%

Surprise tests : 5%

Assignments : 10%

Test papers : 10%

Class participation : 5%

Mid-term examination : 20%

End-term examination : 40%


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An overviewWhat is strategy?

It is the means to achieve the goal or purpose of the

organization.

Defined as a unified, comprehensive and integrated plan

to assure that the objectives and goals of the enterpriseare achieved.

Unified- because it ties all the parts of the enterprise

together

Comprehensive-because it covers all major parts of the

enterprise

Integrated-because all parts of the plan are compatible

with each other and fit together well


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Why needed?

The conditions ofbusinesses change so fast that they areforced to perform SP to anticipate future threats &opportunities. It allows anticipation of change & henceprovide directions and control for the enterprise.

It provides employees with clear goals and directions. Theyare aware of the enterprises destinations and hence knowtheir roles in the plan. This helps to reduce conflicts.

Businesses which perform SP have been found more

effective compared with those which do not. This isbecause SP have helped them to systematize the decisionmaking and refrain from making gambling decisions


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Aphorisms on SP/SM

One must either anticipate change or be its victim

J.K.Galbraith

Tomorrow always arrives.It is always different and then

even the mightiest company is in trouble if it has not

worked on the future

P.F.Drucker

Strategy is not about continuing the past.Its aboutcreating the future

Jim Underwood in

What Is YourCorporate IQ?


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A brief history ofbusiness policy or

strategy as a discipline

Igor Ansoff was the first person to apply the word for

business to mean the director for the future

Came into existence in the late fifties

Word derived from strategem used in war( a military

maneuver designed to deceive or surprise an enemy).

Originally it derived a lot from war and military, thediscipline has undergone lot of changes


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Changes that happened

In war, two (or sometimes more) countries fight with eachother, try to decimate the other, and in the end, one wins

either by defeating the other or the other surrendering. In

business, the fight is usually between one to many

opponents and very rarely decimations or surrendershappen.

The very concept of competitive strategy(that strategy is

needed because competition exists) has also changed

because (1)even monopolies need a strategy to pursue

their goals and (2) new ideas like winning by exploiting

uncontested market opportunities(referred to as the Blue

Ocean)


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Other information:

The initial literature on strategy mainly

concentrated on the premise of competitivestrategy.

In the management education area, the discipline

first appeared in the USMade its presence in India through IIMs which had

affiliations with US business schools like Harvard or

MIT Sloan


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The Indian Scenario

The discipline was adopted by the Indian corporates

in the late 70s and early 80s. Some had formal, full-

fledged depts: Tatas, ITC,HLL(HUL now),L&T etc whereas RIL

was doing it most effectively even while not having a formal

set up.Prof. S.K.Bhattacharya had written in 1984:The distinction

between RIL & others is that it creates the future for itselfrather than waste time on sobbing over governmental

controls and insensitivity of govt. policies.It identifies theopportunities offered by the market place and theenvironment.


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Evolution of Strat. Mgt.Current form after lot of transformations

Stage#1-Financial planning-limited to capital investmentdecisions

Stage#2-Long range planning-trying to forecast &mastermind the future-attempt was to eliminate risk-

Druckers viewsStage#3Corporate planning-function seen from the overallview of the corporation and not necessarily LT-objective toidentify new areas of investment, new courses of action

and evaluating against set targets.Stage#4Strategic planning/Strategic management-processof formulation of an effective strategy to achieve the setgoals-goals normally lies outside the firm-planning involvesformulation & management is the effective management ofthe chosen strategy


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A strategic planning modelRef. handout

Analysis of external environment:

External envt. can be micro or macro.

General factors

Marketing factors and

Supplier factors

Tool: Environmental Threats & Opportunities Profile(E-

TOP)


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Contd.

VCA: According to Porter, the activities of a firm can divided

into 9 value addition steps, classified under two categories:

Primary activities(5)

Inbound logistics

Production/Operations

Outbound logistics

Marketing and Sales

Service


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Contd.

Secondary/support activities(4)

Firm infrastructure

Human resource management

Technology development Procurement


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Generating strategic alternativesAnswers to following questions will direct one to various

alternatives:

1.Should we stay in the same business?

2.Should we get out of this business entirely or some parts

of it by merging, liquidating or selling off?3.Should we do a more efficient or effectivejob in the

business we are in in a slimmed down way?

4.Should we try to grow in this business by

a. increasing our present business?

b. acquiring similar businesses?

5.Should we try to grow in other businesses?

6.Should we do alternatives 2 & 4a?


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Contd.

If question 1 is answered YES, the choice isSTABILITY strategy

If1 is answered NO and alternatives 2 or 3

accepted, the choice is RETRENCHMENT.

YES to 4 & 5 result in GROWTH strategy.

YES to alternative 6 is a COMBINATION strategy

These are called Grand Strategies


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Stability strategy: Maintain the present course: steady asit goes

Why?

1.The firm is doing well or perceives itself as doing well &

management may not be very sure of the reasons for this.

2.It is less risky. A lot of changes result in failures.

3.Managers prefer action to thought. Executives never getaround to consider any other alternatives

4.It is easier and more comfortable to do something which

they are familiar with.

5.The firm is growing so fast that it should stabilize for some

time


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Retrenchment :Slow down and catch your breath: we havegot to do better

Used when enterprises decide to improve the performance

in achieving the objectives by :

1.Focusing on functional improvement especially reduction

of costs.

2.Reducing the number of functions it performs by becominga captive company

3.Reducing the number of products/ markets it serves upto

and including liquidation of the business.


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Why?

1.The firm is not doing well or perceives itself as

doing poorly2.The firm has not met its objectives by following

one of the other three grand strategies and hence

there is pressure from the lenders, stockholders,

customers & others to improve performance

Four sub strategies:

1.Cutback & turn-around

2.Divestment

3.Captive company

4.Liquidation


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Liquidation or Sell-out:

The ultimate in retrenchment. But reasons for liquidating may bedifferent from that of normal retrenchment.

Reasons@Someone is ready to buy the business at a price which managers

think as more than real worth

@Managers feel that business is at its peak and the only direction it canmove now is down

@Managers are not able to run the show because they are old or theyare inefficient and has wisdom to acknowledge the same

@The firm is not able to wither the changes due to changes in theeconomy, technology, market etc due to paucity of resources

@Contingent events

@To concentrate on core

@Squabbles within the family or promoters

Eg:TOMCO, Sumitra Pharma, Boriinger Manheim


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Growth: when the firm increases its level of objectivesupward in a significant increment, much higher than anextrapolation of its past achievement levels; usually

indicated by raising market share/ sales objectivesupward significantly

Why?

1. In volatile industries, stability strategy can mean only short

run success, and may lead to long-range death.2.Many equate growth with effectiveness

3.A belief that society benefits from growth strategies

4.Managerial motivation since growth results in financial &

other rewards to managers; managers would like to beremembered for their deeds& contributions; a growthcompany also becomes better known and may attractbetter management talent


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Diversification achieved through:

@joint development with a company already in the

line@internal development of a product or product line

@merger or acquisition

Why do firms diversify? Two reasons(Drucker):

Internal Pressures

-psychologically people get tired of doing the same thing

again & again. Also, they believe that diversification will

help them avoid danger of overspecialization-it is seen as a way to balance vulnerabilities due to ones own

wrong size

-it is seen as a way to convert present internal cost centres

into revenue roducers


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External Pressures

-the economy (or the market) the firm is operating in

appears too small and confined to allow growth-the firms technology( R&D) turn out products which

appear to have promise

-tax laws encourage investments in R&D instead ofdistribution of dividends and this leads to new

products often as a base for diversification

Diversification generally divided into two

@Horizontal

@Vertical

Grow-to-sell-out Strategy Eg:


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Strategic Choice

Business Definition

We dont sell flowers, we sell beautysays Edward Goeppner of Podesta Baldocchi, a chain of

flower shops. According to him customers of a florist

do exchange money for a dozen roses, but whattheyre really buying is something more than that:

they want to beautify their homes, or express their

love for others, or brighten the day. It doesnt take a

vision to sell flower on a street corner, but it takes a

vision to sell beauty

Exercise: Class to attempt to define the business of Titan

Industries Ltd.


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Strategy formulation

Strategic planning-is the set of decisions and actions which result in

the development of an effective strategy to achieve goal or purpose

Goal/Purpose- is what the orgn. wants to achieve in the long run; it is

the definition of org. purpose- the fundamental reason for the

organization to exist.

The purpose could be to sustain and develop the wealth of the

family owners or to create health for this region or to createshareholder value.

A statement can be as short as a PC on every desk in every house of

Microsoft to as long as IBMs We shall increase the pace of

change.Market driven quality is our aim. It means listening andresponding more sensitively to our customers. It means eliminating

defects and errors, speeding up all our processes, measuring

everything we do against a common standard, and involving

employees totally in our aims.


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Contd.

Mission Tells why you do what you doMission statements vary from orgn. to orgn.

Can be explicitly defined or vaguely defined.

Objectives :are the basic economic & social purpose for

which an organization exists.

Eg: Market Leadership,

Maximizing shareholders wealth

Serving the public by offering excellent service


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Objectives: 2 categories

1. External Institutional objectives or primary objectives

2. Internal or secondary objectives

External are those which define the impact of theorganization in its environment

Internal are those which define how much is expected tobe achieved with resources that is available within the

organization

Some objectives are classified as strategic objectives- arethose which rationalizes what the organization does; theydefine the organization in its environment.

Objectives of DCBL-External-Customer satisfaction

Internal-Market leadership, low cost energy efficientoperation, consistent quality & conformance tospecifications, maintaining ecological balance


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Contd.

The choice of objectives affected by:

1.The realities of ext. envt. and ext. power

relationships (Govt., Taxes, Competition laws,

environmental laws etc)

2.The realities of the firms resources and internal

power relationships

3.The value system of the top management (based on

education, experience, information received etc)


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Choice is also influenced by:

@ whether to pursue active or offensive or passive or

defensive strategies

@ whether to pursue flexible or programmed str. Alternatives

No firm rule regarding adoption ofactive or passive. Can haveactive strategy w.r.t some parts of the envt. & passive w.r.tother parts

Programmed is one planned in such a detailed manner as tomake it difficult to change once begun to be implemented-suitable for stable environments with people preferringwell-defined roles.

Flexible allows shifts in the thrust when conditions warrant it.

Contingency approach requires the planner to choose thepreferred strategy when unexpected happenings occur-preferred for unstable envts with people preferring variety& stimulation


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Strategy ImplementationTwo Steps, related but distinct, in the implementation process

1.Organizational implementation of the choice2.Policy implementation of the choice

The first involves examination of the firms org. structure &

climate- to ensure that it is set up to make the strategy

work. Structural adjustment is essential for economicefficiency. While there are no hard & fast rules regarding

the structure, the right organ. will make it more effective.

Structure will depend on factors like Size, Volatility,

Complexity, Personal characteristics & Dependence on theenvt. The org. structure can be

a. Simple b. Functional c. Divisional 4. SBU 5. Matrix


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6.Style-the management style- the motivation, the reward

system, the overall HR policies & management policies

6.Shared values-the superordinate goals of the

organization-the objectives, the goals, the values-shared by

everybody.

The first three are hardware related & remaining four are

said to be the software ;all are interlinked


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Tools for strategic analysis and formulation

SWOT

TOWS matrix22 Customer-Need matrix

Competitor analysis(Group 1)


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Portfolio Analysis

BCG Matrix(Group 2 to do if needed)

GE Nine-Cell Grid (Group 3) Shell matrix(Group 4)


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Industry analysis Tools

Porters five forces mode(Group 4, if needed)

AD Littles Life-cycle approach(Group 5)


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Other approaches to strategy Core competence theory & strategic intent

Balanced scorecard Strategy mapping

Blue ocean strategy

h & i i


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Core competence theory & strategic intent

Introduced by Hamel & Prahalad

Is any bundle of skills that yield a significant costadvantage in the delivery of a particular customer

benefit.

Is an area of specialized expertise that is the resultof harmonizing complex streams of technology and

work activity


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Th R b d Vi f St t


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The Resource-based View of Strategy

Based on the principle that the competitive advantage

of a firm lies primarily in the application of thebundle of valuable resources at its disposal. For

achieving sustainable competitive advantage, these

resources need to be heterogeneous and not

perfectly mobile. Or, in short, resources are, neitherperfectly imitable nor substitutable without great

effort. When such conditions exist, these resources

can assist the firm in sustaining above averagereturns. Resources need to meet the criteria, VRIN

(Valuable, Rare, In-imitable and Non-substitutable)


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Blue ocean strategy


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Blue ocean strategy

Professors Chan Kim and Renee Mauborgne

(INSEAD) argue that tomorrows winners willsucceed not by battling competitors, but by creating

blue oceans of uncontested market space that is

ripe for growth.

termed value innovation, such strategic moves,

create powerful leaps in value for both the firm and

its buyers, rendering rivals obsolete and unleashing

new demand.

The four actions framework for creating a new value


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The four actions framework for creating a new value

proposition:

Eliminate those factors often taken for grantedeven though they no longer have value

Reduce products or services that have been over-

designed in the race to match and beat thecompetition.

Raise sets new standards that are well above those

of competitors.

Create discovers entirely new sources of value for

buyers and creates new demand, and shifts the

strategic pricing of the industry.

Reconstructing market boundaries


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Reconstructing market boundaries

The six path framework

Look across alternative industriesLook across strategic groups within industries

Look across the chain ofbuyers

Look across complementary product and serviceofferings

Look across a functional or emotional appeal to

buyersLook across time


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Functional Strategies


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Functional Strategies

Why needed?

Str. decisions need to be implemented across allfunctions

Every fn has a genuine role to play in the

achievement of org. objectives and goalsPlanning provides a clear direction enabling them to

reduce executive time spent on decision making

Co-ordination among all functions needed andfunctional strategies help achieving this

Marketing strategy:


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Marketing strategy:

Identifying the needs of customers

Deal with issues of the sort Exclusive outlets or multiple channels of distribution

Type and extent of advertising

Concentrate on a few segments or broadly all customers

To be a price leader or a price follower

To offer comprehensive or limited warranty

To decide on the amount and composition of rewards to

marketing and sales people

Whether to use e-commerce or not


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Contd


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Contd.

To monitor A/Rs

To determine the appropriate dividend ratio To determine how much liquidity to be maintained

To determine the financial liability of the

investments planned.


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R&D strategy :deal with decisions on


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R&D strategy :deal with decisions on

Need

Emphasis on product/process

Approach as leaders or followers

InvestmentsFor in house purpose or on contract to

outside firms

Use of experts-university researchers or

private researchers

HR strategy


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HR strategy Recruitment

SelectionOrientation

Training & Development

Appraisal & performance

Leadership development

Right-sizing/downsizing

Productivity issues

Rewards and promotions

Policies on CEOs and other top managers

Work culture and ethic


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Under this view, the interests of the company are


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, p y

incompatible with those of the society. For society,

the freer the competition among companies, the

better. But, for individual firms, the purpose of

strategy is to restrict the play of competition to get

as much as much as possible for themselves. Or in

order for managers to do their jobs, they mustprevent free competition, at the cost of social

welfare.


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Contd.


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Roberto Goizueta

Insight

Willingness to change

Sam Walton

Mission

Execution of mission

Epilogue


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EpilogueLets look to the most celebrated corporate leader of the

century, Jack Welch, for some insights into new strategic

thinking. Welch identified strategy for GE based on whatthe Prussian General Karl Von Clausenwitz ,who in ONWAR observed in 1833 that men could not reduce strategyto a formula because chance events, imperfections in

execution and the independent will of opponentsautomatically doomed detailed planning. They didntexpect a plan of operation beyond the first contact with theenemy. They set only the broadest objectives &emphasized seizing unforeseen opportunities as theyarose. Strategy was not a lengthy action plan; it was theevolution of a central idea thro continually changingcircumstances


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Contd.


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The question that faces the strategic decision makeris not what his organization should do tomorrow?.

It is, what do we have to do today to be ready for

an uncertain tomorrow?

Peter Drucker

business policy(batch 15) updated

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