CA IPCC Strategic Management Notes Business Policy And Strategic Management Notes

CHAPTER 2

Business Policy & Strategic   Management

Strategy can never be perfect, flawless and optimal: It is in the very nature of strategy that it is flexible and pragmatic; it includes allowance for second-best choices, trade-offs sudden emergencies, failures and frustrations.

I) GENERIC STRATEGIC ALTERNATIVES / GRAND OR MASTER STRATEGIES :

According to William Glueck and Lawrence Jauch, strategic alternatives can be considered in four generic ways. These are :

1.STABILITY STRATEGY: One of the important goals of a business enterprise is stability − to safeguard its existing interests and strengths, to pursue well established objectives, to continue in the chosen business path, to maintain operational efficiency on a sustained basis, to consolidate the commanding position already reached, and to optimise returns on the resources committed in the business.

2. EXPANSION STRATEGY:                

Expansion is a promising and popular strategy that tends to be equated with dynamism, vigour, promise and success. It is often characterised by significant reformulation of goals, major initiatives and moves involving investments, exploration into new products, new technology and new markets, action programmes and so on. Expansion also includes diversifying, acquiring and merging businesses.

1. Expansion through diversification: Diversification is defined as entry into new products or product lines, new services or new markets, involving substantially different skills, technology and knowledge.

Reasons:

➢  Growth : Diversification offers greater prospects of growth and profitability.

➢  Innovation: Innovative and creative Firms look for opportunities and challenges to venture into new activities.

➢  Capacity Utilisation: They may have excess capacity in manufacturing facilities, investible funds, marketing channels, managerial and other manpower, research and development, and so forth.

➢  Synergy: Another reason for diversification lies in its synergistic advantage. It may be possible to improve the sales and profits of existing products by adding suitably related or new products, because of linkages in technology and/or in markets.

1. Expansion through acquisitions and mergers: Acquisition or merger with an existing concern is an instant means of achieving the expansion. It circumvents the time, risks and skills involved in internal growth opportunities and building up necessary resource base required to materialize growth.                                                                   

Reasons:

a)       Growth : To meet the business urge to grow.

b)       Synergy : To achieve a measure of synergy between the parent and the acquired enterprises which results from such factors as physical facilities, technical and managerial skills, distribution channels, general administration, R&D and so on.

3. RETRENCHMENT STRATEGY: A business organization can redefine its business by divesting a major product line or market. Retrenchment or retreat becomes necessary for coping with particularly hostile situations in the environment. Retreat is not always a bad proposition to save the enterprise's vital interests, to minimise the adverse effects of advancing forces, or even to regroup and recoup the resources before a fresh assault and ascent on the growth ladder is launched.

4 COMBINATION STRATEGIES: The above strategies are not mutually exclusive. It is possible mix the above strategies based on situations. An enterprise may seek stability in some areas of activity, expansion in some and retrenchment in the others. Retrenchment of ailing products followed by stability and capped by expansion in some situations may be thought of.

II) STRATEGIC MANAGEMENT :

The overall objective of strategic management is two fold:

♦ To create competitive advantage, so that the company can outperform the competitors in order to have dominance over the market.

♦ To guide the company successfully through all changes in the environment.

III)    THE TASK OF STRATEGIC MANAGEMENT

The strategy-making/strategy-implementing process consists of five interrelated managerial tasks. These are:

♦ Setting vision and mission: Forming a strategic vision of where the organization is headed, so as to provide long-term direction, delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action.

♦ Setting objectives: Converting the strategic vision into specific performance outcomes for the company to achieve.

♦ Designing a strategy to achieve the desired outcomes.

♦ Implementing and executing the chosen strategy efficiently and effectively.

♦ Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities.

III) STRATEGIC MANAGEMENT MODEL :

The strategic management process can best be understood by using a model. This model is not a sure-shot success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. Relationships among major components of the strategic management process are shown in the model.

Identifying an organization's existing vision, mission, objectives, and strategies is the starting point for any strategic management process because an organization present situation and condition may preclude certain strategies and may even dictate a particular course of action. Every organization has a vision, mission, objectives, and strategy, even if they are not consciously designed, written, or communicated.

The strategic management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components. Therefore, strategy formulation, implementation, and evaluation activities should be performed on a continual basis.

Application of the strategic management process is typically more formal in larger and well-established organizations. Formality refers to the extent that participants, responsibilities, authority, duties, and approach are specified. Firms that have many divisions, products, markets, and technologies also tend to be more formal in applying strategic-management concepts.

Strategists do not go through the process in lockstep fashion. Generally, there is give-and-take among hierarchical levels of an organization.

IV)   STRATEGIC LEVELS IN ORGANISATIONS :

CORPORATE LEVEL:

1. Consists of Chief Executive Officer (CEO), other Senior Executives, Board of Directors, and Corporate Staff.
2. They occupy the apex of decision making within the organisation.
3. Their role is to develop corporate strategies along with other senior executives.
4. Responsibilities :

➢  Setting overall strategic objectives,

➢  Allocating resources among the different business areas,

➢  Deciding whether the Firm should divest itself/ acquire any of its businesses,

➢  Ensuring Shareholder Welfare.

BUSINESS LEVEL:

1. The principal General Manager at the Business Level, or the Business Manager, is the head of the concerned division.
2. The strategic role of these managers is to translate the general statement of direction and intent that come from the corporate level, into concrete strategies for individual businesses.
3. To develop strategies for competing in individual business areas, such as financial services.

Thus, corporate level general managers are concerned with strategies that span individual businesses; business level general managers are concerned with strategies that are specific to a particular business.

FUNCTIONAL LEVEL:

1. 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.
2. Functional level managers develop functional strategies in their area that help fulfil the strategic objectives set by business and corporate level managers.

Functional managers provide most of the information that makes it possible for business and corporate managers to, formulate realistic and attainable strategies because they are closer to the customer.