BUSINESS STRATEGY AND

POLICY
 MODULE - 1

Conceptual Framework of Policy

and Strategy
Without a strategy, an organization is like a ship without
a rudder, going around in circles. Its like a tramp ; its has
no place to go

- Peter Drucker
STRATEGY

S T RA
T
E
G
Y
 What Is Strategy?

Strategy is an overriding goal

to achieve superior performance
 What Is Strategic Management?
• A well thought out systematic plan of action to
defend and to defeat competitors.
• Management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Compete successfully
– Grow the business
– Achieve targeted objectives
 Thinking Strategically:
The Three Big Strategic Questions

1. Where are we now?

2. Where do we want to go?
– Business to be in and market positions to stake out
– Buyer needs and groups to serve
– Outcomes to achieve

3. How will we get there?

– A company’s answer to “how
will we get there?” is its strategy
LEVELS/TYPES AND STAGES
OF STRATEGY
 Levels of strategy

• Corporate

• Business

• Functional
 Hierarchy of Strategy
Corporate Strategy

Business Strategy

Functional
Strategy

Chapter 1
Prentice Hall, 2004 10
Wheelen/Hunger
 Functional Level Strategy

They are directed towards

improving the efficiency of basic operations
within a company by attaining a
companywide efficiency, quality, innovation
and customer responsiveness.
 Business Level Strategy
It refers to a plan of action that
strategic managers adopt to use a companies
resources and distinctive competencies
to gain competitive advantage
over its rivals in a market or industry.
Customers: Their Relationship to Business-Level
Strategies

Who will be
served?

Key Issues
in What needs will
Business-level be satisfied?
Strategy

How will those

needs be satisfied?
Who: Determining the Customers to Serve

All Customers
Consumer Industrial
Markets Markets
 Basis for Segmentation
Consumer Markets
• Demographic factors (age, income, sex, etc.)
• Socioeconomic factors (social class, stage in the family life cycle)
• Geographic factors (cultural, regional, and national differences)
• Psychological factors (lifestyle, personality traits)
• Consumption patterns (heavy, moderate, and light users)
• Perceptual factors (benefit segmentation, perceptual mapping)

Industrial Markets
• Product segments (based on technological differences or production
economics)
• Geographic segments (defined by boundaries between countries or
by regional differences within them)
 What: Determining Which Customer Needs
to Satisfy
• Customer needs are related to a product’s
benefits and features.
• Customer needs are neither right nor wrong,
good nor bad.
• Customer needs represent desires in terms of
features and performance capabilities.
 How: Determining Core Competencies
Necessary to Satisfy Customer Needs

• Firms use core competencies to implement

value creating strategies that satisfy
customers’ needs.
• Only firms with capacity to continuously
improve, innovate and upgrade their
competencies can expect to meet and/or
exceed customer expectations across time.
 GENERIC BUSINESS LEVEL STRATEGIES

Lower Cost Uniqueness

Offers to many
Kinds of Cost Leadership Differentiation
customers
Offers to one
Group of Cost Focus Differentiation
customers Focus
 Examples
Strive to be the industry’s low-cost provider
– Wal-Mart
Outcompete rivals on a key differentiating feature
– Rolex – Top-of-the-line prestige
– Mercedes-Benz – Engineering design and
performance
Focus on a narrow market niche
– eBay – Online auctions
– Starbucks – Premium coffees and coffee drinks
 Eg..
Consider the global market for restaurants.
Place the following restaurants onto the
Generic Strategies matrix.
• McDonalds (Global Brand).
• Chick King (lesser known chicken restaurant).
• KFC (global brand).
• Burger King (global brand).
• Subway (growing 'sub' sandwich brand).
 Answer

Lower Cost Uniqueness

Offers to many
McDonalds
Kinds of KFC Subway
customers Burger King
Offers to one
Group of Chick King
customers
 SBU

It is an operating unit that groups a distinct set

of products/services, which are sold to a set of
customers and facing a defined set of
competitors.
 Corporate Level Strategy 

It is concerned with the overall purpose and

scope of the business.
corporate strategy answers the questions of
"which businesses should we be in?" and
"how does being in these businesses create
synergy and/or add to the competitive
advantage of the corporation as a whole?" 
 BCG MATRIX
Market Share
HIGH LOW

HIGH STARS QUESTION

MARKS
??
Market
Growth CASH COWS DOGS

LOW
 THE FOUR SEGMENTS OF THE BCG MATRIX

Placing products in the BCG matrix provides 4 categories in

a portfolio of a company:
Stars (high growth, high market share)
– Stars are using large amounts of cash. Stars are leaders
in the business. Therefore they should also generate
large amounts of cash.
– They generate large cash flows internally as they have
 Low cost advantage
 Economies of scale
 They can meet their investment by their internal cash
flows
Cash Cows (low growth, high market share)

– Profits and cash generation are high. Because of

the low growth, reinvestment opportunities are
low.
– The surplus amount generated by Cash Cows are
often used to invest in emerging stars, invest in
question marks (which can be groomed as future
stars).
Dogs (low growth, low market share)

– Avoid and minimize the number of Dogs in a

company.
– Watch out for expensive ‘rescue plans’.
– Dogs must deliver cash, otherwise they must be
liquidated.
 Question Marks  
(high growth, low market share)
– Question Marks have the worst cash
characteristics of all, because they have high cash
demands and generate low returns, because of
their low market share.
– If the market share remains unchanged, Question
Marks will simply absorb great amounts of cash.
– Either invest heavily, or sell off, or invest nothing
and generate any cash that you can. Increase
market share or deliver cash.
 Stages in strategic management
• Formulation
• Implementation
• Evaluation
 Formulation

Strategy formulation is the process of

establishing the organization's mission,
objectives, and formulating strategies.
 Implementation

It involves managing the process.

This includes monitoring results, comparing to
benchmarks and best practices, evaluating the
efficiency of the process and making
adjustments to the process as necessary.
 Evaluation

To measure the effectiveness of the

organizational strategy, it's extremely
important to conduct a SWOT Analysis.

Strategic options are evaluated against three

key success criteria:
• Suitability (would it work?)
• Feasibility (can it be made to work?)
• Acceptability (will they work it?)
 Why is Strategy Important?

 It lends a Methodology and framework

 Provide route map to a firm
 Ensure speedy decision & direction
 Hedge against uncertainty
 To understand the external trends in advance
 To Ensure the best utilization of resources