Business Policy and Strategic Management—Key Concepts

Business Policy – Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organisation. 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 organisation to govern its actions. They define the limits within which decisions must be made. Business policy also deals with the acquisition of resources with which organisational goals can be achieved. Business policy is the study of the roles and responsibilities of top-level management, the significant issues affecting organisational success and the decisions affecting the organisation in the long run.

Features of Business Policy – An effective business policy must have following features:

1. Specific – Every policy must have a basic feature of being specific/definite. If it is uncertain, then its implementation will become difficult.
2. Clear – Policy must be unambiguous and as clear as possible in order to guide the subordinates effectively. It should avoid frequent use of jargons and connotations to create any chaos.
3. Reliable & Uniform – Policy must be uniform and reliable enough to be efficiently followed by the subordinates.
4. Appropriate – Policy should be appropriate to represent the organisational goals.
5. Simple – A policy should be simple and easily understood by each and every person in the organisation. For example, “No smoking within 100 feet of welding operations designated by the painted yellow floor lines.”
6. Inclusive/Comprehensive – In order to have a wide scope, a policy must be comprehensive.
7. Flexible – Policy should be flexible in application. It should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.
8. Stable – Policy should be stable so as to avoid the scope of any indecisiveness and uncertainty in minds of those who look into it for guidance. For example, “Cell phones are not permitted in the conference room.”

Good and proper business policy is the key for success of business. Policies offer great advantages to the management if they are stated with clarity. It raises the confidence of the line managers. They make the decisions within a given boundary. The managers act without the need for consulting the senior managers every time, which minimises the need for close supervision. It also builds the confidence of the managers.

The importance of business policies are discussed as follows:

1. Control – Policy facilitates effective control over the working of the organisation. It indirectly controls the managers at different levels without directly interfering in their routine working.
2. Effective Communication – Generally policies are written and well drafted statements. Hence there is not a remote chance of confusion or miscommunication. By setting policies, the management ensures that decisions made will be consistent and in the best interest of the organisation. Clearly laid down policies try to eliminate personal hunch and biasness.
3. Clarity – Policies clarify the viewpoint of management for the purpose of running particular activity/activities.
4. Motivation – Policy enables the line managers to be self reliant. They take the decision on their own in the confined border of the policy. This raises their confidence and motivates them. A well drafted policy provides a pattern within which delegation of authority is possible.
5. Policy Review – Regular review of policy is must to see to it that the existing policies are relevant in the given situation. If required policy may be modified or altered depending on as per business environment. Review of policy at regular intervals provides a method of anticipating future conditions and situations and helps to resolve how to deal with them.
6. Economical and Efficient – Policy enables the management to carry out its operations effectively and efficiently. It enhances the working of the organisation.
7. Coordination of Efforts – Policies ensure coordination of efforts and activities at different levels in the organisation. Activities and duties are assigned in such a way that all activities in the organisation are integrated effectively. Policy coordinates with individual efforts.
8. High Morale – A well crafted policy can raise the overall morale of an enterprise. Policy enables the managers to understand the intention of the management.

Strategic Management is the process of formulating, implementing, and evaluating cross-functional decisions that enable an organisation to achieve its objectives. The strategic management model entails strategy assessment, formulation/planning, execution and evaluation. It asks the basic questions like:

• Where are we now?
• Where do we want to go?
• How do we get there?

The Strategic Management Framework has multiple phases which are discussed below:

1. Business Assessment – Every Strategic Management Framework starts with assessment of business. This is the phase of gathering data and information to understand the needs of the business, the company’s strategic direction, and the initiatives that will assist in growth and expansion. It is the phase to evaluate the internal and external factors influencing the business. The internal analysis looks at organisational structure, internal processes and core competencies of the employees. It also reviews employee interaction with each other and the management layer. The external analysis helps to identify industry and socio-economic factors that impact the competitive position of the business. Analytical tools, such as SWOT Analysis, are helpful during this phase.
2. Strategy Formulation – Based on the results of the analysis, the business can then formulate a strategy. Strategy Formulation is the phase of deciding the best course of action for accomplishing the business’s objectives and purpose. This is the stage to develop a vision and mission, long-term objectives, generate alternative strategies and choose which strategies to pursue.
3. Translate Strategy to Action – To translate strategy into action strategic planning is required. It is the process of converting the strategies into an integrated plan of action that can be implemented. It also involves creating a strategic plan which summarises the time-phased outputs and drivers.
4. Strategy Execution – Strategy execution (implementation) is the phase of putting the strategy into action. It includes designing the organisation’s structure, distributing resources, setting policies, developing the decision-making process, and managing human resources.

The bottom line is that there is not one prescription that fits all. Businesses have to create and adapt a strategic management process that works best for them and those that they serve.

Your vision statement is where you want your business to reach at. It is your future dream for your business. It is your optimum version of your business or where you can visualise being positioned in 3, 5 or 7 years’ time.

Examples of Vision Statements:

• Disney – “To make people happy”.
• ICSI – “To be a global leader in promoting good corporate governance”.
• Google – “To organise the world’s information and make it universally accessible and useful”.
• Instagram – “Capture and Share the World’s Moments”.

Vision serves the purpose of stating what an organisation wishes to achieve in the long run. It articulates the position that the organisation would like to occupy in future. The vision is about looking forward and about formalising where you and the business are going. It is a future aspiration that leads to an inspiration of being the best in one’s business sphere. It creates a common identity and a shared sense of purpose.

A vision statement is a company’s road map, indicating both what the company wants to become and guiding transformational initiatives by setting a defined direction for the company’s growth. Vision statements undergo minimal revisions during the life of a business, unlike operational goals which may be updated from year-to-year.

Features:

1. Inspiring – It motivates employees and is something that employees view as desirable.
2. Clear – It defines a prime goal.
3. Future-Oriented – It describes where the company is going from the current level.
4. Stable – It offers a long-term perspective and is unlikely to be impacted by market or technology changes.
5. Concise – It should be easy to remember and repeat.
6. Time Horizon – It defines a time horizon within which the company’s desires to achieve its long term goals.
7. Challenging – It should not be something that can be easily met and discarded.
8. Abstract – It is general enough to encompass all of the organisation’s interests and strategic direction

Purpose:

Vision statements may fill the following functions for a company:

• It serves as foundations for a broader strategic plan.
• It motivates existing employees and also attracts potential employees by clearly categorising the company’s goals and attracting like-minded individuals.
• It focus company efforts and facilitate the creation of core competencies by directing the company to only focus on strategic opportunities that advance the company’s vision.
• It helps companies differentiate from competitors. For example, profit is a common business goal, and vision statements typically describe how a company will become profitable rather than list profit directly as the long-term vision.

Where your vision is your ultimate goal, your mission is how you will get there. Your mission explains why your business exists.

A mission statement defines the basic reason for the existence of the organisation.

The mission statement should define its customers, products or services, markets, technology, philosophy and self-concept.

Following questions to be considered while preparing for a mission statement:

1. What is the basic purpose of your organisation?
2. What is unique about your organisation?
3. What is likely to be different about your business five years down the line?
4. Who are, and who should be, your core customers?
5. What are, and what should be, your principal economic concerns?
6. What are the basic beliefs, values and philosophical priorities of your firm?

Elements of Mission Statement

• Clearly Articulated
• Relevant
• Written in a positive tone
• Unique
• Enduring
• Adapted to the Target Audience.

A mission statement reflects the corporate philosophy, identity, character, and image of an organisation.

A mission statement is a short statement of an organisation’s purpose, identifying the goal of its operations – what kind of product or service it provides, its primary customers or market, and its geographical region of operation.

It communicates primarily to the people who make up the organisation – its members or employees – giving them a shared understanding of the organisation’s intended direction.

Vision serves the purpose of stating what an organisation wishes to achieve in the long run. It articulates the position that the organisation would like to occupy in future. The vision is about looking forward and about formalising where the business is going, while a mission statement is an enduring statement of purpose that distinguishes one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms. In nutshell, A vision is the “what” (what the entity wants to become, achieve), and the mission is the “why” and “how” (why does the entity exist in the first place).

The vision and mission statements compared as follows:

An organisation is divided into several functions and departments that work together to bring a particular product or service to the market. There are three main levels of management – corporate, business, and functional.

1. Corporate Level – Corporate level of management consists of the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff. The role of corporate-level managers is to oversee the development of strategies for the whole organisation. This role includes defining the mission and goals of the organisation, determining what businesses it should be in, allocating resources among the different businesses, formulating and implementing strategies that span individual businesses, and providing leadership for the organisation.
2. Business Level – Business level general managers are concerned with strategies that are specific to a particular business. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.
3. Functional Level – 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. Thus, a functional manager’s sphere of responsibility is generally confined to one organisational activity.

Corporate level of management consists of the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff. The role of corporate-level managers is to oversee the development of strategies for the whole organisation. This role includes defining the mission and goals of the organisation, determining what businesses it should be in, allocating resources among the different businesses, formulating and implementing strategies that span individual businesses, and providing leadership for the organisation.

Corporate strategy helps an organisation to achieve and sustain success. It is basically concerned with the choice of businesses, products and markets. It is often correlated with the growth of the firm.

Corporate strategy in the first place ensures the growth of the firm and its correct alignment with the environment. Corporate strategies are concerned with the broad and long-term questions of what businesses the organisation is in or wants to be in, and what it wants to do with those businesses. They set the overall direction the organisation will follow. It serves as the design for filling the strategic planning gap. It also helps to build the relevant competitive advantages. A right fit between the organisation and its external environment is the primary contribution of corporate strategy. Basically the purpose of corporate strategy is to harness the opportunities available in the environment and countering the threats embedded therein. With the help of corporate strategy, organisations match their unique capabilities with the external environment so as to achieve their vision and mission.

There are three main levels of management in a typical organisation: Corporate, Business, and Functional.

In given case, the role of Chief Executive Officer pertains to Corporate Level.

The corporate level of management consists of the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff. These individuals occupy the apex of decision-making within the organisation and broadly have following roles:

1. Oversee the development of strategies for the whole organisation.
2. Defining the mission and goals of the organisation.
3. Determining what businesses it should be in.
4. Allocating resources among the different businesses.
5. Formulating and implementing strategies that span individual businesses.
6. Providing leadership for the organisation.
7. Provide a link between the people who oversee the strategic development of a firm and those who own it.

Business Strategy is the strategy framed by the business managers to strengthen the overall performance of the enterprise. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.

Business-level strategy focuses on how to attain and satisfy customers, offer goods and services that meet their needs, and increase operating profits. To do this, business-level strategy focuses on positioning itself against competitors and staying up to date on market trends and technology changes.

Economist Michael Porter theorises that there are two main types of business strategy – cost leadership and differentiation.

A business can also integrate these two strategies.

1. Cost Leadership – Cost leadership is the tactic of winning over customers through aggressive pricing and making profits through high efficiency. For example, a car manufacturing company like Kia that prices its vehicles on the lower end of the price spectrum is employing a cost leadership strategy.
2. Differentiation – A company that differentiates adds unique features or services that command a higher selling price. A car company like Tesla that offers premium electric vehicles is using differentiation to create a competitive advantage in the market. Although cost leadership and differentiation may seem like opposite ends of the spectrum, many businesses use aspects of both strategies. For example, Toyota offers a hybrid electric vehicle that offers unique features but maintains a modest price point.

Following are the main points of distinction between Business Strategy & Corporate Strategy:

A financing strategy is integral to an organisation’s strategic plan. It sets out how the organisation plans to finance its overall operations to meet its objectives now and in future.

A financing strategy summarises targets, and the actions to be taken over 3 to 5 year period to achieve the targets. It also clearly states key policies which will guide those actions.

Financial metrics have long been the standard for assessing firm’s performance. Financial goals and metrics are established based on benchmarking the “best-in-industry” and include:

(1) Free Cash Flow – Free cash flow can be a tremendously useful measure for understanding the true profitability of a business. It’s harder to manipulate and it can tell a much better story of a company than more commonly used metrics like net income.

Free cash flow is a measure of the firm’s financial soundness. It shows how efficiently financial resources are being utilised to generate additional cash for future investments. It represents the net cash available after deducting the investments and working capital increases from operating cash flow. Companies should utilise this metric when they anticipate substantial capital expenditures in the near future.