UNIT-1 Topics

Introduction of Business Policy and Strategy

Nature, Scope and Importance of Business
Policies
Forecasting and Long range Planning
Strategic Planning and Strategic
Management
What is Strategy ?
 Gerry Johnson and Kevan Scholes, authors of
"Exploring Corporate Strategy," say that strategy
determines the direction and scope of an
organization over the long term. For them, strategy
should determine how resources should be
configured to meet the needs of markets and
stakeholders.
 Strategy is an action that managers take to attain
one or more of the organization’s goals. Strategy
can also be defined as “A general direction set for
the company and its various components to achieve
a desired state in the future. Strategy results from
the detailed strategic planning process”.
 Michael Porter, a strategy expert and professor at
Harvard Business School, emphasizes the need for
strategy to define and communicate an
organization's unique position, and says that it
 The purpose of strategy is to create competence (things
firm does better than competitors), synergy (between
different parts of the organisation and their activities)
and value creation so as to attain vision and mission.
 Strategy requires searching for new sources of
advantage. To achieve sustainable long term
competitive advantage the firm must invent new
rules and new games to become unique and create
wealth.
 Strategy is almost always the result of some type of
collective decision-making process.
 The vision, mission, objectives, and corporate
strategies are determined by top management.
 PRO-ACTIVE STRATEGIES AND REACTIVE STRATEGIES

PROACTIVE STRATEGIES ARE DESIGNED TO ANTICIPATE POSSIBLE

CHALLENGES
A proactive approach to developing strategies concentrates on planning for the
future. The basis of these strategies is an anticipation of threats, challenges and
opportunities in the business environment. In addition, these strategies help in
identifying and avoiding possible hazards before they are actually experienced.
Therefore, proactive strategies help in forecasting the future and thus, attaining
improved results. Furthermore, these strategies frequently view the organization in
a more analytical manner, taking into account various factors like market condition,
customer complaints, accidents, unnecessary costs, high labor turnovers and
claims.

REACTIVE STRATEGIES ARE THOSE THAT RESPOND TO SOME

ANTICIPATED EVENTS ONLY AFTER THEY OCCUR.
A reactive strategy is one in which problems are handled after
they have taken place. When an organization adopts a reactive
approach, it does not plan for the long term. Sometimes,
unanticipated problems are experienced by organizations, which
may be internal or external to the organization. In such
Business Strategies
 A business strategy is the combination of all the
decisions taken and actions performed by the
business to accomplish business goals and to
secure a competitive position in the market.
 It is the backbone of the business as it is the
roadmap which leads to the desired goals. Any
fault in this roadmap can result in the business
getting lost in the crowd of overwhelming
competitors.
 It is nothing but a master plan that the
management of a company implements to
secure a competitive position in the market,
carry on its operations, please customers and
achieve the desired ends of the business.
 A business strategy is a set of competitive moves
and actions that a business uses to attract
customers, compete successfully, strengthening
Business Policy
 Business Policy defines the scope or spheres within
which decisions can be taken by the subordinates in
an organization. It permits the lower level
management to deal with the problems and issues
without consulting top level management every time
for decisions.
 Business policies are the guidelines developed by an
organization to govern its actions. They define the
limits within which decisions must be made. Business
policy also deals with acquisition of resources with
which organizational goals can be achieved. Business
policy is the study of the roles and responsibilities of
top level management, the significant issues
affecting organizational success and the decisions
affecting organization in long-run.
Features of Business Policy
An effective business policy must have following
features-
Specific- Policy should be specific/definite. If it is
uncertain, then the implementation will become
difficult.

Clear- Policy must be unambiguous. It should avoid

use of jargons and connotations. There should be no
misunderstandings in following the policy.

Reliable/Uniform- Policy must be uniform enough so

that it can be efficiently followed by the subordinates.

Appropriate- Policy should be appropriate to the

present organizational goal
Simple- A policy should be simple and easily
understood by all in the organization.

Inclusive/Comprehensive- In order to have a wide

scope, a policy must be comprehensive.

Flexible- Policy should be flexible in

operation/application. This does not imply that a
policy should be altered always, but it should be wide
in scope so as to ensure that the line managers use
them in repetitive/routine scenarios.

Stable- Policy should be stable else it will lead to

indecisiveness and uncertainty in minds of those who
look into it for guidance.
Difference between Policy and Strategy
The term “policy” should not be considered as
synonymous to the term “strategy”. The difference
between policy and strategy can be summarized as
follows-
 Policy is a blueprint of the organizational activities
which are repetitive/routine in nature. While
strategy is concerned with those organizational
decisions which have not been dealt/faced before in
same form.
 Policy deals with routine/daily activities essential
for effective and efficient running of an
organization. While strategy deals with strategic
decisions.
 Policy is concerned with both thought and actions.
While strategy is concerned mostly with action.
 A policy is what is, or what is not done. While a
Business Policy: Nature, Scope and Parameters of
Business Policy!
Scope of Business Policy:
 We have observed that the overall performance of
the company depends on the business policies, and
the top management is mainly responsible for the
policy formulation.
 Business policies cover such a wide variety of
subjects and are so broad-based that every possible
matter that affects the interests of any one in the
organization, the community and the government
are included in them.
 In fact, business policies cover all the functional
areas of business- production, marketing, personnel
and finance. These functional areas are generally
covered by the term as “major policies” and “minor
policies”.
Nature and Parameters of the Business Policy:
There are certain parameters for business policy, they
are:
 Policy should be identifiable and clear, either in
words or in practice.
 Objectives of the policy should be fully identified and
well defined.
 Policy should not be conflicting with other functional
and divisional policies of the company.
 The policy should be capable enough to fully exploit
the opportunities.
 Policy should be characterized by fairness and
honesty with organizational philosophy, objectives,
goals and strategy.
 Policy should be appropriate to the desired level of
contribution to society.
 Policy should be acceptable to all concerned; i.e., it
should be appropriate to the personal values and
aspirations of the key managers.
 Policy should constitute a clear stimulus to
organizational effort and commitment.
 Policy should always be realistic.
Importance of Business Policy
 Business policies are important and affect
everything from legal liabilities to employee
satisfaction and a positive public image.
 Policies make sure everyone is on the same page
when it comes to expectations of certain things.
 A business might have policies pertinent to
different aspects of the company. There may be
safety policies, human resources hiring policies and
anti-discrimination policies.
 There may also be policies that pertain to
employees' dress code, lunch schedules, time off
and holidays.
 Other policies are relevant to the customer
experience including greeting customers, phone
call management and product delivery specifics.
 The policies and methods of implementation you
Business policy and strategy
 There is a strong link between a policy and a
strategy. In general terms, a strategy is broader
than a policy. A strategy is a broad policy
framework which deals with what the business
wants to achieve and how to achieve that. In
strategic the document, such as a business plan, a
number of strategic options are identified. A policy,
on the other hand, spells how to achieve a strategic
choice. The policy spells out what needs to be
done, when and how. With a clear policy statement,
standard operating procedures and standards are
identified and explained.
 The business strategy is created by the top
executive of an organization. What constitutes the
top executive varies from company to company
depending on the size and organizational structure
BASIS FOR STRATEGY POLICY
COMPARISON
Meaning Strategy is a Policy is the guiding
comprehensive plan, principle, that helps
made to accomplish the organization to
the organizational take logical decisions.
goals.
What is it? Action plan Action principle
Nature Flexible Fixed, but they allow
exceptional situations
Related to Organizational moves Organizational rules
and decisions for the for the activities
situations which have which are repetitive
not been encountered in nature.
previously.
Orientation Action Thought and Decision
Formulation Top Level Top Level
Management and Management
Middle Level
Management
STRATEGIC MANAGEMENT AND BUSINESS POLICY
 Strategic Management Deals with strategic decisions
that decide the long-term health of an enterprise. It is a
comprehensive plan of action designed to meet certain
specific goals.
 Business Policy offers guidelines for managers to take
appropriate decisions.
 Strategic Management is a means of putting a policy into
effect within certain time limits.
 Business Policy is a general course of action with no
defined time limits.
 Strategic Management deals with those decisions which
have not been encountered before in quite the same form,
for which no predetermined and explicit set or ordered
responses exist in the organization and which are
important in terms of the resources committed or the
precedents set.
 Business Policy a guide to action in areas of repetitive
16
activity.
Evolution of Strategic Management and Business
Policy
Historical Evolution of Strategic Management and
Business Policy started in 1911 at Harvard Business
School. In 1911 HBS introduced an Integrative course
in management to create general management
capability.
Origin of the word strategy can be observed in the
Greek word Strategos (from word Strategia) in 1680.
Meaning of Strategos is General Army or Military
commander.

Historical Evolution of Strategic Management &

Business Policy
Below is the detailed information about the Evolution
of Strategic Management. This can be explained with
the help of the following key points.
1911: Harvard Business School Introduced Course in
Management
1959: Introduction of Business Policy in Academics
1969: The American Assembly of Collegiate Schools
of Business, a regulatory body for business schools,
made the course of Business Policy a mandatory for
the purpose of recognition
1980-2000: Business policy has become an integral
part of Management Curriculum
The term Business Policy has been used traditionally
until the end of the 20th century.
After that, the new titles Strategic Management,
Corporate Strategy and Policy have been used.
Evolution based on Managerial Practices
Use of plannings techniques by Managers can be
observed as an important part of the development of
the term Business Policy.
Along with day to day planning and practices,
managers began planning for the future, including
budgets and other resources.
You can also use the following simple chart to
understand the evolution of the term Strategic
Management.
First Short term planning (day to day) Replaced
by Long-range Planning
Then Long-range planning replace by Strategic
Planning
Then Strategic Planning replaced by Strategic
Management
The term Strategic Management is nowadays used to
Difference Between Strategic Planning and
Strategic Management
 A strategic planning is an activity, which
determines the objectives and considers both
internal and external environment to design,
implement, analyze and adjust the strategies, to
gain competitive advantage.
 Strategic Planning is not exactly same as strategic
management, which implies a stream of decisions
and actions taken by the top level managers to
achieve organizational goals. It is nothing but the
identification and application of strategies, to
improve their performance level and attain
dominance in the industry.
BASIS FOR STRATEGIC PLANNING STRATEGIC
COMPARISON MANAGEMENT

Meaning Strategic Planning is a Strategic Management

future oriented activity implies a bundle of
which tends to determine decisions or moves taken
the organizational in relation to the
strategy and used to set formulation and execution
priorities. of strategies to achieve
organizational goals.
Stresses on It stresses on making It stresses on producing
optimal strategic strategic results, new
decisions. markets, new products,
new technologies etc.
Management Strategic planning is a Strategic management is
management by plans. a management by results.
Process Analytical process Action-oriented process
Function Identifying actions to be Identifying actions to be
taken. taken, the individuals who
will perform the actions,
the right time to perform
the action, the way to
perform the action.
Forecasting vs planning – Difference Between
Forecasting And planning
 Forecasting is basically done to project or predict a
future event. The forecast is made on the basis of
performances of past and present and trend going on at
present.
 On the other hand, planning is the process of
conscripting plans for something that you want to
happen in the future.
 Planning is also done based on the performances of past
and present and also expectations from the future. Both
forecasting and planning are important managerial
functions which are pertinent for other functions.
 In simple words, we can say that forecasting is to talk
about what could happen in the future depending on the
performance of a company at present or in past years.
Whereas, planning is doing the thinking before you take
action and to decide in advance that what should be done
in the future.
 PLANNING FORECASTING
Planning is a process of Forecasting is a process of
looking into the future and making a prediction for the
plan course of actions for performance of an
future for organization and organization in future on the
make preparations for basis of its performance in
different departments past and present.
accordingly.
Planning is based on Forecasting is based on
pertinent information, assumptions and speculations
objectives, and forecast. which requires a certain
degree of guess.
It is concerned with It is concerned with
assessing future and approximating future events
preparing for it. and trends.
It is the responsibility of It is the responsibility of
top level of managers. managers at different level
and also experts of different