Business Policy and Strategy Lesson Notes

8/12/2019 Business Policy and Strategy Lesson Notes

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PROFESSIONAL STUDIES,

ACCRADIPLOMA LEVEL 200

Facilitators;

Danaa Natognmah, Sam Tuffour, Kwame Fosu-Boateng

Business policy and Strategy 1


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Course synopsis

This course will introduce students to therelationship between strategic planning andhuman resource planning. Issues to bediscussed include budgeting, control,

business strategy and policy and appropriateorganizational design with particularemphasis on the relationship of theseaspects to labour power planning and human

resource development. The main theoreticalapproaches to the study of strategy andpolicy will be taught and understanding oftechniques used to explain policy formulation,evaluation and policy change


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Week 1- Introduction

Business policy and strategy andsynonymous to strategic management orstrategic planning.

The goal is to understand how companiesgain competitive advantage.

This requires companies to set out a mission,vision and corporate values for themselves.The formulation of these things will require itsimplementation and subsequent evaluation.

Stages in strategic management; Formulation

Implementation and

Evaluation


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Strategic Management

defined Strategic Management (SM)is the art andscience of formulating, implementing and

evaluating cross-functional decisions thatenable an organization to achieve its

objectives. Hence SM focuses of integrating the

following towards achieving organizationalsuccess Management

Finance

Marketing

Accounting

Production

Research and development


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Strategic Management defined

(contd) SM could also be defined as the set of

management decisions and actionsthat determines the long-run

performance of an organization. Strategy refers to a comprehensive

master plan that tells us how theorganization is going to achieve its

objectives Strategy=game plan=compass=road

map=ploy


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(contd) What makes a decision strategic in

nature;

When;

It involves top level managers It affects the long term directions of the entire

organization

It requires the commitment of the largeproportion of the firms resources

It involves gaining competitive advantage

It addresses changes in the businessenvironment

It focuses on building on the resources andcompetences


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(contd) Levels of strategy;

Corporate level

Business level

Functional level

The classification of decisions falling

under these different levels differ

among organizations but mostlyinfluenced by size.


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Strategy Formulation

Some issues considered at theformulation stage;

Identification of new business

opportunities Decision of which business to abandon

Allocating resources across the

organization

Decision of expansion into new markets

Decision on mergers and acquisitions

etc


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Strategy Implementation

Some issues considered at theimplementation stage; Division of responsibilities/task

Mobilization of employees andmanagement

Consensus building on how to achievethe goal/target set

Acquisition of resources needed toimplement tasks

Acquisition of resources needed

etc


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The Strategic Management

Model The model consists of the following

sequential activities; Identification/formulation of vision, mission

and objectives or the organization

Assessment of the external businessenvironment

Assessment of the internal businessenvironment

Establishment of long term objectives

Generate, evaluate and select appropriatestrategies

Implement selected strategies

Measure and evaluate performance


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Benefits of Strategic

Management Helps in identifying opportunities Facilitates an objective review of managerial

problems

Improves coordination

Minimizes the influence of adverse conditions on the

organization Facilitates the formulation of decisions that better

support the corporate objectives

Enhances effective communication

Enhances effective allocation of time and resources

Helps to effectively blend individual responsibilities Encourages forward thinking (pro-activeness)

Encourages favourable attitudes towards change

It provides discipline and formality to themanagement of the business


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Risks of Strategic

Management Why some firms do no strategic

management; Poor appreciation of the benefits

Fire fighting attitude

Too expensive Time consuming

Laziness

Complacency with current successes

Fear of failure

Over-confidence Fear of the unknown

Prior bad experiences

Conflict of interest between top management and

the organizations utmost goal


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WEEK 2 &3STRATEGY

FORMULATION Vision is the desired future state of an

organization. It is what we want to become

Vision should shared. Thus it should; Provide commonality of interest

Provide opportunities and present achallenge to employees

Reduce monotony

(HINT REFER TO THE VISION STATEMENTS OF REA LCOMPANIES AND DISCUSS)


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STRATEGY FORMULATION

(Contd) Mission statement is an enduring

statement of purpose that distinguish

one business from other similar firms.

It identifies the scope of a firmsoperations in terms of product and market

It answers questions like;

What is our business? Why do we exist?


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STRATEGY FORMULATION

(Contd) Why mission statement?

It helps in mobilizing resources

It helps in setting policy guidelines

It sets the company apart from othercompetitors in terms of product and

business philosophy

Mission statement=businesscreed=business purpose


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Features of a strong mission

statement It should be broad in scope Reconciles interest of diverse

stakeholders Finely balanced between specificity and

generality It must arouse positive feelings and

emotions It must motivate readers to action It must generate a good image of the

firm to outsiders Must be dynamic in nature Must provide a sense of how the

company wants to grow


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Hints in writing a mission

statement It should be broad It should not be too lengthy

It must be inspiring

It must describe the products/serviceprovided by the firm

It must reveal the corporate social

responsibility philosophy of theorganization

It must be enduring


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Business Ethics (contd) Merely having code of ethics documented could

serve as a public gimmick, set of platitudes or awindow dressing act.

Documented code of ethics only become effectivewhen followed by periodic ethics workshops to

sensitize people on; its composition

Essence

Punishments for non-adherence

There is the need to create an ethics culture. Todo so business strategies could consider aninteractive fun/computer-game using ethicalsituations like Citicorp

Managers have the responsibility of ensuring

ethical leadership


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Important point in implementing

Business Ethics

The manager is solely responsible for how ethical theorganization is If a persons lacks character and integrity, no mater how

knowledgeable, how brilliant, how successful, he ends updestroying

He destroys people (the most vital resource of the organization) He destroys the spirit of the organization (the spirit of the

organization rests at the top)

He destroys performance

No one should ever think of being a businessstrategist unless he/she is willing to have his/her

character serve as the role model. Every ethics workshop should include messages from

the CEO emphasizing ethical business practices andthe need to report unethical behaviours

C t S i l R ibiliti


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Corporate Social Responsibilities

(CSR) defined

CSR refers to the duty that a corporate entity hasto create wealth by using means that avoids harmand also to protect or enhance societal assets(Steiner and Steiner, 2000).

A companies actions that contributes tosustainable development through the companyscore/business activities, social investment andpublic policy debate.

Principles of CSR;

Charity (organizations should give to the needy as aresponsibility)

Stewardship (organizations should consider theinterest of all persons who are affected by decisions

and policies of the company or business)


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Theories of CSR

Stakeholder theory ( the society is astakeholder to the organizations

hence their needs should be met)

Social contracts (every organizationhas a contractual obligation with

society)

Legitimacy theory (the society decidesor grants legitimacy to the

organizations i.e they allow good

organizations to exist)


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Arguments for/against CSR

FOR Against

It balances corporate power with

responsibility

It lowers economic efficiency and

profits

It discourages government

regulations

It imposes unequal costs among

competitors

It promotes long term profits It imposes higher cots which are

passed to consumers

It improves business value and

reputation

It requires social skills which

businesses may lack

It corrects social problems caused

by businesses

It places responsibility on business

instead on individuals


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Dimensions of CSR

Economiccompanies have a responsibilityto produce goods and services that society

needs

Legal companies have responsibility to

obey law

Discretion Companies have to exhibit

voluntary roles driven by social norms; i.e

companies have to exhibit behaviour andethical norms beyond what is required

Ethical companies have to exhibit

behaviour and ethical norms beyond what is


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Making CSR profitable

Companies ask the followingquestions when formulating their CSRpolicy;

To whom should we be sociallyresponsible?

To extent should we be sociallyresponsible towards them?

What is the nature of our products andmarket?

How much resources do we have toinvest in CRS

What issues constitute CSR?


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Aligning CSR to Strategy

Identify the stakeholders of the company Understand the expectation of the

stakeholders from the company

Reconcile identified claims of the different

stakeholders to the vision and strategy of thecompany

Assign priorities to the various claims

Coordinate the claims with other elements ofthe companies mission and planimplementing the CSR activities.


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Why the heightening concern for

CSR today? Common sense approach that

companies should be able to do well

by doing good

Resurgence of environmentalism Increasing buyer/consumer power

Globalization of businesses

CSRs effect on the mission statement


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Implication of CSR for firms Better risk management

Gain government approval

Stronger reputation

Improved productivity

CSR activities confer benefits beyondenhanced reputation (Smith, 2003)

CSR activities can be tools to attract, retainand develop managerial talents (Hempel

&Porges, 2004) Doing good leads to making more money

(Pearce & Doh, 2005)


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Concluding thoughts of CSR

CSR rests on a continuum The strategic aim of business is to earn a return on

capital and if in any particular case the return in thelong run is not satisfactory, then the deficiency shouldbe corrected or the activity abandoned for a more

favourable on (Sloan, 1964) A good company delivers excellent products and

services and a great company does all that and strivesto make the world a better place (Ford, 2003)

The actions of a company to benefit society beyondthe requirement of the law and the direct interests ofshareholders (Pearce and Doh, 2005)

WHERE WOULD YOU PLACE YOUR COMPANYON THE CONTINUUM?


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WEEK 4EXTERNAL

ENVIRONMENTAL ANALYSIS The external environment consists of all elementsoutside the domain of an organization which

has/can have an influence of the competitiveposition of an organization

The essence of conducting an externalenvironmental analysis/audit is to develop a finitelist of opportunities that could be of benefit andthreats that should be avoided

Thus it is not aimed at developing an exhaustive

list of every factor that could influence a businessrather it is aimed at identifying key variables thatoffer actionable responses (offensive or defensive)in strategy formulation.


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Tools for conducting External

Environmental Analysis Immediate External Environment

(Industry)

To conduct analysis in this environment,

the Porters Five Forces is used The Remote External Environment

To conduct analysis in this environment

the PESTEL is used.


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PORTERS FIVE FORCES

[INDUSTRY ANALYSIS]

Rivalryamong

competingfirms

Potentialdevelopmentof substitutes

Bargainingpower of

Consumers

Potentialentry of newcompetitors

BargainingPower ofsuppliers


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Porters Five Forces contd Industry competitors: Rivalry among existing competitors takes many

familiar forms, including price discounting, new product introductions,advertising campaigns, and service improvements. High rivalry limits theprofitability of an industry. The degree to which rivalry drives down anindustry's profit potential depends, first, on the intensity with whichcompanies compete and, second, on the basis on which they compete.

New Entrants: New entrants to an industry bring new capacity and a desireto gain market share that puts pressure on prices, costs, and the rate ofinvestment necessary to compete. Particularly when new entrants arediversifying from other markets, they can leverage existing capabilities andcash flows to shake up competition, as Pepsi did when it entered the bottledwater industry, Microsoft did when it began to offer internet browsers.

Substitute: A substitute performs the same or a similar function as anindustry's product by a different means. Videoconferencing is a substitutefor travel. Plastic is a substitute for aluminium. E-mail is a substitute forexpress mail. When the threat of substitutes is high, industry profitabilitysuffers. Substitute products or services limit an industry's profit potential byplacing a ceiling on prices. If an industry does not distance itself fromsubstitutes through product performance, marketing, or other means, it will

suffer in terms of profitability - and often growth potential.


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Porters Five Forces contd Buyers: Powerful customers - the flip side of powerful suppliers

can capture more value by forcing down prices, demanding betterquality or more service (thereby driving up costs), and generallyplaying industry participants off against one another, all at theexpense of industry profitability. Buyers are powerful if they havenegotiating leverage relative to industry participants, especially ifthey are price sensitive, using their clout primarily to pressure price

reductions.

Suppliers: Powerful suppliers capture more of the value forthemselves by charging higher prices, limiting quality or services, orshifting costs to industry participants. Powerful suppliers, includingsuppliers of labour, can squeeze profitability out of an industry that

is unable to pass on cost increases in its own prices. Microsoft, forinstance, has contributed to the erosion of profitability amongpersonal computer makers by raising prices on operating systems.PC makers, competing fiercely for customers who can easily switchamong them, have limited freedom to raise their prices accordingly.

PESTEL


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PESTEL

[Remote Environmental Analysis] PESTEL stands for Political, Economic, Socio-cultural,

Technological, Environmental, (or ecological and Legal

Political: Political factors include change in governments may belimited to home country but other , international bodies such asECOWAS, and EU with corresponding changes in policies andpriorities may have an impact the organization and how it operates.

Economic: Economic factors may also be limited to the homecountry, but as global trade continues to grow, economic difficultiesin one nation tend to have broader impact. For instance the 2008financial crisis was as a result of USA mortgage crisis but it endedup affecting many nations including Ghana.

Socio-cultural: These are factors that arise as a result ofdemographic change or changes in consumer behaviour patterns,cultural norms and even religious considerations


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PESTEL Contd Technological: this is a result of the development of technology.

There are two types of technological change, which aredevelopments in IT and developments in technology specific to anindustry or market. The identification of technology that provideopportunity for the growth of the organization is very critical if anorganization is able to recognize the potential that earlier.

Legal: It is vital to consider factors arising from changes to the law.Some legal issues may originate from the national government butothers, may operate across a broader spectrum. One issue whenconsidering the legal element of the PESTLE analysis is torecognise laws that have an impact upon the organization eventhough the originated from countries other than that in which the

organization is based. Recent examples are the changes tointernational financial compliance regulations, such as the Sarbanes-Oxley Act in the USA and the Basel II Accord.

Environmental (or ecological): Is about the concerns with regardto the 'green issues'. There are increasing concerns about

packaging and the increase of pollution.

WEEK 5 INTERNAL


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WEEK 5- INTERNAL

ENVIRONMENTAL ANALYSIS

Aside the external forces, there areelements within the organization that can

serve as a hindrance or catalyst to gaining

competitive advantage. To do this kind of analysis, three tools will

be considered;

SWOT Analysis Resource Based View [RBV]

Value Chain Analysis [VCA]


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SWOT Analysis

This is an acronym that stands for Strength,Weakness, Opportunity and Threat

Strength: The internal positive capabilities of an

organization which enables it to do business

easily

Weakness: Internal negative aspects of the

organization that will diminish the chances of

successOpportunity: External factors that present strong

basis for gaining competitive advantages

Threat: External factors that have the potential to

harm the organization


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SWOT Summary

Strengths-willaid the

developmentof the

organization

Weaknesses-will undermine

thedevelopment

of theorganization

Opportunities-available to begrasped by the

organization

Threatspresentingpotential

problems forthe

organization

SWOT may sometimes run the following risks; (1) risk ofoveremphasizing internal strengths and downplayingexternal threats; (2) it can be static and ignore changingcircumstances; (3) it can overemphasize single strengths;(4) a strength may not necessarily be a source ofcompetitive advantage


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Resource Based View (RBV)

The resource-based view (RBV) as a basisfor the competitive advantage of a firm liesprimarily in the application of a bundle ofvaluable tangible or intangible resources atthe firm's disposal to transform a short-run

competitive advantage into a sustainedcompetitive advantage

It seeks to find the set of Resources (and notopportunity or threat) that are critical toattaining the sustained competitiveadvantage.

Such critical resources then getmanagementsprime attention

Hence RBVs basis for conducting internal

analysis differs from the SWOT approach


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RBV contd A critical resource should possess the following or it should be

VRIN Valuable: A resource must enable a firm to employ a value-

creating strategy, by either outperforming its competitors orreduce its own weaknesses

RareTo be of value, a resource must be rare by definition. In a

perfectly competitive strategic factor market for a resource, theprice of the resource will be a reflection of the expecteddiscounted future above-average returns

In-imitableIf a valuable resource is controlled by only one firm itcould be a source of a competitive advantage

Non-substitutableEven if a resource is rare, potentially value-

creating and imperfectly imitable, an equally important aspect islack of substitutability

The VRIN characteristics mentioned are individuallynecessary, but not sufficient conditions for a sustainedcompetitive advantage hence a critical resource shouldpossess all four qualities


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VCA A value chainis a chain of activities that a firm operating in a

specific industry performs in order to deliver a valuableproduct or service for the market

The idea of the value chain is based on the process view oforganizations, the idea of seeing a manufacturing (or service)

organisation as a system, made up of subsystems each withinputs, transformation processes and outputs. Inputs,transformation processes, and outputs involve the acquisitionand consumption of resources - money, labour, materials,equipment, buildings, land, administration and management.How value chain activities are carried out determines costs

and affects profits.

VCA therefore analyses the internal operational chain toascertain which part of the chain adds the most value to theend product. Its is not on findings a critical resource or SWOTbut improving efficiency in the operational chain

WEEKS 6&7 Establishing Long Term


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WEEKS 6&7Establishing Long-Term

Objectives

Long-term objectives are results or targetsexpected from pursuing certain strategies over along term period (beyond 2 years).

Strategies are actions to be taken to accomplishlong-term objectives.

Nature of long-term objectives; They should be

Quantifiable

Realistic

Understandable

Challenging Hierarchical

Obtainable

Congruent with the organizations vision and strategy


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Generic Strategies These are fundamental philosophies by which

organizations believe they can attain sustainablecompetitive advantage.

The are basically three different (but not mutuallyexclusive) once

Low cost leadership strategy (attaining sustainablecompetitive advantage through offering very affordableproducts)

Differentiation strategy (attaining sustainablecompetitive advantage through the offering of superior

quality products beyond what is common to themarket)

Focus strategy (offering unique products to a selectedtarget market whose needs have hitherto not beenmet. It is also called nitch marketing strategy)

Alternative Strategies for achieving


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Alternative Strategies for achieving

Long-term objectives

There are over ten alternative strategies also called grand strategiesthat companies can pick from. They are;

Forward Integration (gaining ownership or increasing control overdistributors or retailers

Backward Integration (seeking ownership of increased control of a firmssuppliers)

Horizontal Integration (seeking ownership or increased control overcompetitors)

Market Penetration (Seeking increased market share for presentproducts or services in present markets through greater marketingefforts)

Market Development (Introducing a present product or service into a newgeographical area)

Product Development (Seeking increased sales by improving productsand services or developing new ones)

Related diversification (adding new but related products/brands

Unrelated diversification (adding new unrelated products, services orbrands.

Alternative Strategies for


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Alternative Strategies forachieving Long-term objectives

contd Related diversification (adding new but related products/brands Unrelated diversification (adding new unrelated products, services or

brands.

Joint venture (strategy that occurs when two or more companies for atemporary partnership or consortium for the purpose of capitalizing onsome identified opportunity that is beyond the strength of any of the

individual firms) Merger/Acquisition (A merger occurs when so firms of similar size unite

to form one entity and an acquisition occurs when a larger firmpurchases/acquires a smaller firm or vice-versa)

Outsourcing (transferring the functional operations such as HR,marketing, accounting, payroll, customer service among others to otherfirms at a fee)

Retrenchment/turnaround (regrouping through cost and asset reductionto reverse declining sales and profit

Divestiture (Selling a division or part of an organization)

Liquidation (selling all of a companys assets in parts for their tangibleworth)

All selection of any of the above strategy for a company will be


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WEEK 8ORAL PRESENTATION ON

THE CASE STUDY ON YAHOO


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WEEK 9 - INTERIM ASSESSMENT

WEEKS 10&11 STRATEGY


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WEEKS 10&11 - STRATEGY

ANALYSIS AND CHOICE

This involves making subjective decisions based on objectiveinformation. It seek to determine course of action that couldbest enable the firm to achieve its mission and objectives.

The firmspresent strategies, mission and objectives coupledwith information resulting from the external and internal

environmental audit provide the basis fir generating andevaluating feasible alternative strategies

Unless a desperate situation confronts a firm, alternativestrategies will likely represent those that move the firm fromits present position to a desired future position.

To conduct the strategic analysis, the SWOT matrix will beused. Other tools like the SPACE matrix, Boston Box and

Ansoff Matrix also exists


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SWOT MATRIX

Use strategies that enablesoptimal use of companysstrengths to capitalize on

opportunities

Employ strategies that enables afirm to use its strength to avoid orreduce the impact of the external

threats

Use strategies that improvesworks on the weaknesses and

positions the firm in a position thatenables it to take advantage of

opportunities

Employ defensive strategies andtactics directed towards reducing

internal weaknesses and avoidingthe impact of external threats on the

organization

Strengths

Weaknesses

To


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The Boston growth-share


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The Boston growth share

Box/matrix contd

The Boston growth share


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The Boston growth-share

Box/matrix contd


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WEEK 12 - REVISION

Documents

Business Policy and Strategy Lesson Notes