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Unit –II
Unit – III
Unit – IV
Unit – V
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Business Policy and Strategy
UNIT 1
Business
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Business Policy and Strategy
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Business Policy and Strategy
Features of Policy
From the above definitions, following features of a policy can be
identified
A policy provides guidelines to the members of the organization
for deciding a course of action. Policy provides and explains what
a member should do rather that what he is doing.
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Classifications
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Oral Policies : Oral policies are those, which are issued or stated by
the word of mouth. Such policies are generally adopted when an
organization is small and face-to-face communication is desired.
They are often not remembered for long and easily forgotten.
Therefore, usually oral policies are not in popular use.
Written Policies : Written policies are those, which are normally put
in black and white and stated in clear terms so that personal whom
they are addressed to easily understand them. For putting the policies
in writing, much care to be taken.
Implied policies : These are the policies, which are implied from the
code of conduct or from the behavior of business employees; but they
are expressed. They generally flow from the philosophy of the
business, its social values and even traditions.
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Basic Policies : These policies are basis of the organization and are
framed by the top management. They spell out the approach of a
company to its activities. For example, marketing policy of a firm may
be “consumer-oriented” as against “product-oriented”, with the main
purpose of competing with the products of competitors.
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Policy Implementation
Policy Control
Policy Formulation
When the policies are formulated, it is advisable to get the draft of the
policy statement approved by those who are supposed to apply it in
the interest of the organization as a whole management and
personnel.
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Once the basic principles on which the policies are designed and the
rules and regulations included in the proposed draft policy are
thoroughly understood and accepted.
Policy Implementation
Policy Control
This is a very important element of business policy which is likely to be
implemented at different levels on different occasion. The
management in this regard should be careful to see that the policy
implementation takes place in conformity with the basic principles,
rules and regulations set by the policy makers.
Policies are in the form of guidance and not the order. Rules are
positive instructions or orders to do or not to do something
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Objectivity
Relationship to other objectives
Complementariness
Stability and Flexibility
Fairness and Honesty
Being known, understood and accepted
Policy in writing
Simple and free from ambiguity
Supplementary to other policies
Ethical standards
In Terms of Knowledge
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In Terms of Skills
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In Terms of Attitude
UNIT 2
Business Strategy
Meaning / Definitions
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Levels of Strategy
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Features of Strategy
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Implementation of Strategies
Activating strategies
Designing structures and system
Managing behavioral implementation
Managerial functional implementation
Operational sing strategies
SWOT Analysis
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and the strategy that reflects the best match between them. It is
based on the logic that an effective strategy maximizes a business’s
strengths and opportunities but at the same time minimizes its
weaknesses and threats.
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ETOP Analysis
The following summary shows the major factors of ETOP. The summary
provides an example of an ETOP prepared for an established company
in the bicycle industry.
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It can also take advantage of high export potential that already exist.
Since the company is an established manufacturer of bicycle, it has a
favorable supplier, as well as technological environment.
But contrast the implications of this ETOP for a new manufacturer who
is planning to enter this industry.
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BCG Matrix : The Boston Consulting Group (BCG) matrix, such as the
one shown in the following is provides a graphic representation for an
organization to examine the different business in its portfolio on the
basis of their relative market shares and industry growth rates.
The vertical axis denotes the rate of growth in sales in percentage for a
particular industry.
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The horizontal axis represents the relative market share, which is the
ratio of a company’s sales to the sales of industry’s largest competitor
or market leader.
The low and high market shares are separated by a vertical lines set at
1.0. The means that a company would have a relative market share of
less than 1.0 if it does not have the largest share.
A relative market share of more than 1.0 would occur for companies
that are the largest sellers in their various industries. Still, in order to
get the maximum benefit out of the experience curve, the BCG matrix
indicates that it is necessary to be the market leader.
The result of combining the industry growth rate and relative market
share, each along a high and low dimension, is a four-cell matrix. Each
cell of this matrix has been given an interesting and appropriate name
by the Boston Consulting Group.
The four cells of the BCG matrix have been termed as stars, cash cows,
question marks and dogs. Each of these cells represents a particular
type of business.
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Cash Cows : As the term indicates, cash cows are businesses which
generate large amounts of cash but their rate of growth is slow. In
terms of PLC, these are generally mature business which is reaping the
benefits of the experience curve.
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The logic of the experience curve dictates that the company obtaining
an early lead can expect cost advantages and market leadership and
can successfully create entry barriers.
The experience curve for the company shows that it faces cost
disadvantages owing to a low market share. The only possibility for
the company could be to gain market share at the expense of rival
firms, a possibility that is remote owing to the high cost involved. So
retrenchment strategies are normally suggested.
TOWS analysis helps you get a better understanding of the strategic choices that you face.
(Remember that "strategy" is the art of determining how you'll "win" in business and life.) It
helps you ask, and answer, the following questions: How do you:
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A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you
think about the options that you could pursue. To do this you match external opportunities and
threats with your internal strengths and weaknesses, as illustrated in the matrix below:
This helps you identify strategic alternatives that address the following additional questions:
Strengths and Opportunities (SO) - How can you use your strengths to take advantage of
the opportunities?
Strengths and Threats (ST) - How can you take advantage of your strengths to avoid real
and potential threats?
Weaknesses and Opportunities (WO) - How can you use your opportunities to overcome
the weaknesses you are experiencing?
Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoid
threats?
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UNIT 3
Personnel Policy
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The Size of the Run Policy : This will depend on the backing and
orders as well as the nature of automation introduced. It will also
depend on the type of the market.
The temptation is to increase the size of the run to take advantage of
avoiding the set up costs. However, these have to be weighted against
the cost of heavier inventories.
Automation Policy : Policy decision at the top level may have to be
taken on the question of automation. The modern trend is towards
greater automation but this has to be tempered by social objectives of
avoiding increasing unemployment in India.
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Source of Capital Policy: Policy dimensions are taken at the top level
regarding the sources of capital. For example, in the case of the sole
trader, the individual proprietor generally provides the capital, which is
supplemented by loans, which he may be able to obtain from banks
and other financial institutions.
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Policy decisions will have to be taken with regard to how for such
current assets should be held in cash or in other readily marketable
securities or placed in fixed deposit to earn interest.
These policies are also concerned with the extent of bank borrowings
permissible and allowances credit facilities that should be extended to
the customers.
Profit Distribution Policy : Policy decisions have to be taken with
regard to how much profits should be distributed by way of dividends
to the share holders and how much should be ploughed back for future
capital requirements.
If adequate dividends are not distributed, when capital is required in
the future it will be difficult to attract investors as new shareholders or
to induce existing shareholders to take up more shares in the company.
Some companies follow a policy of dividend equalization by setting
aside profits in good years to be used for payment of dividend in lean
years.
Depreciation Allowance Policy: Policy decisions have to be taken
on the question of extent of depreciation to be written off while
keeping in mind the tax providing as well as its possible use as source
of funds for the enterprise.
UNIT 4
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Stability Strategy
The objective may be, for instance, to enter new market segments
gradually. Nothing is attempted by way of a big leap forward.
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In this sense, growth strategy differs from stability strategy in that the
former implies exponential growth while the latter implies an
extrapolation of growth based on past performance.
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Internal Growth Strategy: In this strategy, the company will take all
necessary effort to grow its business with help of its own resources and
effort.
Joint Venture: It can take place between two or more firms of the
same country or between the firms operating in different countries. As
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they are formed with a different purpose and have a different rate of
success.
Retrenchment Strategy
Poor performance
Threat to survival
Redeployment resources
Insufficiency of resources
To secure better management and improved efficiency
There are different ways in which a company may defend its existence
and survive, or best serve the interest of owners in the face of internal
or external crises.
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When these may produce results, which can be compared in the light
of objectives set, and control process comes into operation. If the
results and objectives differ, a further analysis is required to find out
the reasons for the gap and taking suitable actions to overcome the
problems because of which the gap exists.
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The 7-S-Model
By Dagmar Recklies
The 7-S-Model is better known as McKinsey 7-S. This is because the two persons who
developed this model, Tom Peters and Robert Waterman, have been consultants at McKinsey
& Co at that time. Thy published their 7-S-Model in their article “Structure Is Not
Organization” (1980) and in their books “The Art of Japanese Management” (1981) and “In
Search of Excellence” (1982).
The model starts on the premise that an organization is not just Structure, but consists of
seven elements:
Structure
Strategy Systems
Shared
Values
Skills Style
Staff
www.themanager.org
Those seven elements are distinguished in so called hard S’s and soft S’s. The hard
elements (green circles) are feasible and easy to identify. They can be found in strategy
statements, corporate plans, organizational charts and other documentations.
The four soft S’s however, are hardly feasible. They are difficult to describe since
capabilities, values and elements of corporate culture are continuously developing and
changing. They are highly determined by the people at work in the organization. Therefore
it is much more difficult to plan or to influence the characteristics of the soft elements.
Although the soft factors are below the surface, they can have a great impact of the hard
Structures, Strategies and Systems of the organization.
Description
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Effective organizations achieve a fit between these seven elements. This criterion is the
origin of the other name of the model: Diagnostic Model for Organizational Effectiveness.
If one element changes then this will affect all the others. For example, a change in HR-
systems like internal career plans and management training will have an impact on
organizational culture (management style) and thus will affect structures, processes, and
finally characteristic competences of the organization.
In change processes, many organizations focus their efforts on the hard S’s, Strategy,
Structure and Systems. They care less for the soft S’s, Skills, Staff, Style and Shared
Values. Peters and Waterman in “In Search of Excellence” commented however, that most
successful companies work hard at these soft S’s. The soft factors can make or break a
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successful change process, since new structures and strategies are difficult to build upon
inappropriate cultures and values. These problems often come up in the dissatisfying results
of spectacular mega-mergers. The lack of success and synergies in such mergers is often
based in a clash of completely different cultures, values, and styles, which make it difficult
to establish effective common systems and structures.
The 7-S Model is a valuable tool to initiate change processes and to give them direction. A
helpful application is to determine the current state of each element and to compare this
with the ideal state. Based in this it is possible to develop action plans to achieve the
intended state.
UNIT 5
Business Ethics
Business ethics is concerned with the relationship of business goals
and techniques to specific human needs. It studies the impact of acts
on the good of the individual, the firm, the business community and
the society as a whole.
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Outcome:
Increased
responsiveness.
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Social Audit
Business unit has obligations to its employees, owners, buyers,
government and environment. The question now is how to assess the
performance of a particular business unit.
The answer is ‘social audit’. The social audit is an approach for
monitoring, appraising and measuring the social performance of
business. Kreps may regarded as the founding father of the idea.
He included among these measurements; employment, production,
consumer effort commanded, consumer funds absorbed, pay rolls and
dividend and interest. The basic purpose of a business is to maximize
the financial return earned on its financial investment plus the amount
of social return on its social investment.
To make rational investment decisions in the social area it is necessary
to know what the social returns are, and if we are to assess them by
the same measures as for financial investment, these must be
expressed in monetary terms.
A social audit is a systematic study and evaluation of an organization’s
social performance, as distinguished from its economic performance.
It is concerned with the possible influence on the social quality of life
instead of the economic quality of life.
Social audit leads to a report on the social performance of a business
unit. It is the evaluation or assessment of a company’s performance
against planned goals in the area of social responsibility.
The internal and external bodies may carry out the assessment,
different people have interpreted the term social audit differently.
To some it means the public disclosure of a company’s social
responsibility and to some others social audit is a comprehensive
evaluation of the way a company discharge all its responsibilities to
shareholders, customers, and employees and to the wider community.
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