BUSINESS POLICY AND STRATEGY MGT

Definition of 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-

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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 follows1. 2. 3. 4. 5. 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 formulation is responsibility of top level management. While strategy formulation is basically done by middle level management. 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 strategy is the methodology used to achieve a target as prescribed by a policy.

Strategy Evaluation Process and its Significance

Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc. The process of Strategy Evaluation consists of following steps1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as what benchmarks to set, how to set them and how to express them. In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task. The performance indicator that best identify and express the special requirements might then be determined to be used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc. Measurement of performance - The standard performance is a bench mark with which the actual performance is to be compared. The reporting and communication system help in measuring the performance. If appropriate means are available for measuring the performance and if the standards are set in the right manner, strategy evaluation becomes easier. But various factors such as managers contribution are difficult to measure. Similarly divisional performance is sometimes difficult to measure as compared to individual performance. Thus, variable objectives must be created against which measurement of performance can be done. The measurement must be done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual basis. Analyzing Variance - While measuring the actual performance and comparing it with standard performance there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits between which the variance between actual and standard performance may be accepted. The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it. Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a corrective action. If the performance is consistently less than the desired performance, the strategists must carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the organizational potential does not match with the performance requirements, then the standards must be lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process.

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Following are the main differences between Strategy Formulation and Strategy ImplementationStrategy Formulation Strategy Implementation

Strategy Formulation includes planning and decision- Strategy Implementation involves all those means related making involved in developing organizations strategic to executing the strategic plans. goals and plans.

In short, Strategy Formulation is placing the Forces In short, Strategy Implementation is managing forces before the action. during the action.

Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly an Administrative Activity based on strategic decision-making. Task based on strategic and operational decisions.

Strategy Formulation emphasizes on effectiveness.

Strategy Implementation emphasizes on efficiency.

Strategy Formulation is a rational process.

Strategy Implementation is basically an operational process.

Strategy Formulation requires co-ordination among few Strategy Implementation requires co-ordination among individuals. many individuals.

Strategy Formulation requires a great deal of initiative Strategy Implementation requires specific motivational and logical skills. and leadership traits.

Strategic Formulation precedes Strategy Implementation.

STrategy Implementation follows Strategy Formulation.

STRATEGIC PLANNING
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue a particular course of action. Generally, strategic planning deals with at least one of [1] three key questions : 1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?" The key components of 'strategic planning' include an understanding of the firm's vision, mission, values and strategies. The vision and mission are often captured in a Vision Statement and Mission Statement. Vision: outlines what the organization wants to be, or how it wants the world in which it operates to be (an "idealised" view of the world). It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty." Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its vision. For example, the charity above might have a mission statement as "providing jobs for the homeless and unemployed". Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life". These example values may set the priorities of self sufficiency over shelter. Strategy: Strategy, narrowly defined, means "the art of the general." A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.

Strategic Planning vs. Strategic Management

The #2 Required Core Competency of All Organizations
Analytical Thinking: Traditional Strategic Planning A Project vs. Systems Thinking: Yearly Strategic Management System A New Way to Run the Business

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Project (beginning and end)

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Continuous/ongoing process with Yearly Strategic Management System and Cycle/review to stay on track CEO, line leadership driven/staff supported Start with Future Ideal and work backwards Outcomes measures and action plans set/accountability tracked Execution/change management/customer focus is the goal; single documents of one page each (KISS) Key stakeholder feddback/commitment also (Parallel Process) - people support what they help create Strategic change in our roles/behaviors day-to-day Integrated into business units, annual and daily decision-making levels, too, via the glue of core strategies/core values Customer-focused positioning and value-added delivery as the focus for

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Staff Written

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Focus on today/extrapolation into the future Motherhood/apple pie words

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Big Strategic Planning document as end

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Senior leadership/planning department answers only (we/they)

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Weekend retreat

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Strategic level only

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Individual change projects (TQM, service, empowerment, value chain,

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etc.) 10. Single event - ine time only, every five years 11. Environmental scan of today only yearly 12. Analytical tools/analysis focus vs.

all projects 10. Annual Strategic Review (and Update) each year 11. Future environmental scan/quarterly reviews continuously 12. Focus on strategy, commitment, and buy-in 13. Shared strategies as the glue and organizing forces 14. Customer-focused and values-driven empowerment 15. Strategic Business Redesign (Watertight Integrity)

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13. Units/departments/silo mentality goals 14. Hierarchy/controls

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15. Organization structure remains the same

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