BUSINESS POLICY &

STRATEGIC
MANAGEMENT
MODULE-1
What is a Strategy
 The word “strategy” is derived from the
Greek word “strat gos”; stratus (meaning
army) and “ago” (meaning
leading/moving).
 Plan the destruction of the enemies
through effective use of resources.
 History and evolution of Strategic Management
 Evolution of business policy and strategic management as a discipline
 Origin – 1911- Harvard Business School – Integrated Course in Management aimed at providing general
management capability.
 Hofer: Strategic Management – A Casebook in Policy and Planning: The Business Policy evolution has
undergone four Paradigm Shifts. This transition is of overlapping nature.
 Development of subject of Business Policy has always followed the demands of real life business.
 1930 -1960: Environment change: New Products: Continuously changing market: Ford Foundation
recommended report, by Gordon and Howell, suggested a “Capstone” course of Business Policy which
would give the students an opportunity to pull together what they have learned in the separate business
fields and utilize this knowledge in the analysis of complex business problems.
 1969: The course was made mandatory by American Assembly of Collegiate School of Business
(AACSB)
 1990: The course has become an integral part of management education curriculum.
Evolution of Business Policy has undergone four Paradigms

 Paradigm One: Ad-hoc Policy – making.

 1900 -1930: Era of Mass Production – Maximising output,
Normally a Single Product, Standardised and low cost product,
catering to unique set of customers servicing limited geographical
area – Informal control and co-ordination. The Strategic planning was
centred on maximising output.
 Paradigm Two – Integrated Policy Formulation.
 1930-1940: Changes in Technology, Turbulence in Political
environment, Emergence of new industries, Demand for novelty
products even at higher costs, Product Differentiation, Market
segmentation in increasingly competitive and changing markets.
These all made investment decisions increasingly difficult. This was
era of integrating all functional areas and framing policies to guide
managerial actions.
Paradigm Three – The Concept of Strategy.
•1940- 1960: Planned policy became irrelevant due to increasingly complex and accelerating
changes. Firms had to anticipate environmental changes.
•A strategy needed to be formed with critical look at basic concept of Business and its
relationship to the existing environment then.

Paradigm Four – The Strategic Management.

1980 & onwards: The focus of Strategic Management is on the strategic process of business firms
and responsibilities of general management.
Everything out side the four walls is changing rapidly and this phenomenon is called
as “Discontinuity” by Mr. Peter Drucker. Past experiences are no guarantee as science and
technology is moving faster. The future is no more extension of the past or the present.
The world is substantially compressed and managing the External & Internal environment
becomes crucial function.
What to produce, where to market, which new business to enter, which one to quit and how to get
internally stronger and resourceful are the new stakes.
Strategic Planning is required to be done to endow the enterprise with certain fundamental
competencies / distinctive strengths which could take care of eventualities resulting from
unexpected environmental changes.
The Indian Scenario:

•However, the evolution of this fourth phase is still continuing and is yet not formed into a theory of how to

manage an enterprise. But Strategic Management is a very important tool for and way of thinking to resolve

strategic issues.

•The Indian Scenario:

•IIMs and Administrative Staff College of India formed in early sixties were based on American Model. IIM-A

is based on Harvard Model. The All India Council of technical Education (AICTE), The Association of Indian

Management Schools (AIMS) have recommended a standard curriculum including “Business Policy and

Strategic Management” as a compulsory course. Business Policy is the preferred nomenclature but

Strategic management is being progressively adapted.

 Definition of Strategic Management

 The concepts in strategic management have been developed by authors like Alfred Chandler, Kenneth

Andrews,Igor Ansoff, William Glueck, Henry Mintzberg, M.icheal Porter, Peter Drucker and others.
 Strategic Management includes understanding the strategic position of an organization, making strategic
choices for the future and turning strategy into action --- Johnson and Sholes(2002)
 Strategic Management consists of the analysis , decisions and actions organization undertakes in order to
undertakes in order to create and sustain competitive advantages. – Dess, Lumpkin and Taylor,2005
 What Is Corporate Strategy?

 A corporate strategy is a multi-level strategy employed by a company to define its goals and structure
its approach to attain them. Depending on the size and nature of the business, the strategy may be
formed with the aim of increasing profits, selling a business or expanding to new markets. It aims to
achieve the most profitable allocation of resources and organizational structure.
 Importance of A Corporate Strategy

 A corporate strategy is important, as it can help indicate the future success and health of the company.
Here are some reasons why a corporate strategy is important:
 Larger company overview: Instead of considering each business unit, this strategy focuses on the
entire company.
 Organisational rearrangement: It can help re-engineer an organization radically if required.
 Problem identification: A corporate strategy helps identify existing or potential problems in an
organisation that could impede its ability to achieve its goals.
 Prevent counterproductive measures: It can help prevent the implementation of any other plan or
strategy that can be counterproductive or not viable for the company's healthy growth.
 Guidance for business strategies: A corporate strategy gives a starting point to build individual
business unit strategies.
 Contingency plans: It can help the company create appropriate contingency plans to implement
when the need arises.
Corporate strategy portrays a general strategy in a company and focuses on its business portfolio to add
more value. Its planning involves focusing on the organization’s structure and identifying the problems in
different business areas.
The responsibility for appropriate strategy formulation lies with the top-level managers of the company.
They discuss, analyze and finalize strategies to move forward in the market.
The main pillars of corporate strategy are the allocation of resources, organizational design,
portfolio management, and prioritization (strategic trade-off). Resource allocation involves the efficient
allocation of human and capital resources. Organizational design explains how the organization operates
to achieve its aims.
Portfolio management strategies involve optimizing the portfolio per the company’s strategic objectives.
Finally, prioritization or strategic trade-off demands the design of an optimal strategic mix by balancing
risk and return to meet the company’s objectives.
What are the Components of Corporate Strategy?

There are several important components of corporate strategy that leaders of

organizations focus on. The main tasks of corporate strategy are:

1.Allocation of resources

2.Organizational design

3.Portfolio management

4.Strategic tradeoffs
1.Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people and capital. In
an effort to maximize the value of the entire firm, leaders must determine how to allocate
these resources to the various businesses or business units to make the whole greater than
the sum of the parts.
Key factors related to the allocation of resources are:
•People
• Identifying core competencies and ensuring they are well distributed across the firm
• Moving leaders to the places they are needed most and add the most value (changes
over time, based on priorities)
• Ensuring an appropriate supply of talent is available to all businesses
•Capital
• Allocating capital across businesses so it earns the highest risk-adjusted return
• Analyzing external opportunities (mergers and acquisitions) and allocating capital
between internal (projects) and external opportunities
2.Organizational Design
Organizational design involves ensuring the firm has the necessary corporate structure and related
systems in place to create the maximum amount of value. Factors that leaders must consider are the
role of the corporate head office (centralized vs decentralized approach) and the reporting structure of
individuals and business units – vertical hierarchy, matrix reporting, etc.
Key factors related to organizational design are:
•Head office (centralized vs decentralized)
• Determining how much autonomy to give business units
• Deciding whether decisions are made top-down or bottom-up
• Influence on the strategy of business units
•Organizational structure (reporting)
• Determine how large initiatives and commitments will be divided into smaller projects
• Integrating business units and business functions such that there are no redundancies
• Allowing for the balance between risk and return to exist by separating responsibilities
• Developing centers of excellence
• Determining the appropriate delegation of authority
• Setting reporting structures (military / top-down, matrix reporting)
3 Portfolio Management
Portfolio management looks at the way business units complement each other, their
correlations, and decides where the firm will “play” (i.e. what businesses it will or won’t enter).
Corporate Strategy related to portfolio management includes:
•Deciding what business to be in or to be out of
•Determining the extent of vertical integration the firm should have
•Managing risk through diversification and reducing the correlation of results across
businesses
•Creating strategic options by seeding new opportunities that could be heavily invested in if
appropriate
•Monitoring the competitive landscape and ensuring the portfolio is well balanced relative to
trends in the market
4 Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing the tradeoffs between risk and return
across the firm. It’s important to have a holistic view of all the businesses combined and ensure that the
desired levels of risk management and return generation are being pursued.
Below are the main factors to consider for strategic tradeoffs:
•Managing risk
• Firm-wide risk is largely depending on the strategies it chooses to pursue
• True product differentiation, for example, is a very high-risk strategy that could result in a market
leadership position or total ruin
• Many companies adopt a copycat strategy by looking at what other risk-takers have done and
modifying it slightly
• It’s important to be fully aware of strategies and associated risks across the firm
• Some areas might require true differentiation (or cost leadership) but other areas might be better
suited to copycat strategies that rely on incremental improvements
• The degree of autonomy business units have is important in managing this risk
•Generating returns
• Higher risk strategies create the possibility of higher rates of return. The examples above of true
product differentiation or cost leadership could provide the most return in the long run if they are
well executed.
• Swinging for the fences will lead to more home runs and more strikeouts, so it’s important to have
the appropriate number of options in the portfolio. These options can later turn into big bets as the
strategy develops.
•Incentives
• Incentive structures will play a big role in how much risk and how much return managers seek
• It may be necessary to separate the responsibilities of risk management and return generation so
that each can be pursued to the desired level
• It may further help to manage multiple overlapping timelines, ranging from short-term risk/return to
long-term risk/return and ensuring there is appropriate dispersion
 Stability Strategy
 Strategy to maintain the current market share and position by continuing to serve in the
same industry with the same product line and services.

 It occurs when a company performs fairly and reasonably well in its sector and chooses to
gain stability.

 The main objective of organizations through such strategies is to gain perpetual growth and
improved performance in the long run.

 It is common because it is less risky and inexpensive as no new or out-of-box planning

needs to be executed.

 It gives importance to sustainable and modest growth.

 Expansion Strategy

 The strategies focus on entering new markets, innovating and introducing new products and
services, etc.

 Methods include expansion through concentration, diversification, integration, cooperation, and

internationalization.

 It aims to expand market share, obtain increased profit, and achieve faster growth.

 It helps companies dominate the market, withstand competition, gain competitive advantages, and
in certain market conditions, expansion strategies help companies survive.

 It benefits society through innovation.

 It is highly rewarding and adds value to the company.

 Retrenchment Strategy

 It is the opposite of an expansion strategy. It helps reduce the loss made by restructuring the

strategies, cutting off loss-making divisions or businesses, etc.

 The main types of retrenchment strategies are turnaround, divestment, and liquidation.
 It is formulated when companies observe that they must revamp their business model, sell certain
assets to generate cash flow, etc. Enterprises may stop a product line due to low demand and
high-cost manufacturing.
 It is the least utilized strategy as it is only regulated as protective measures in a survival mode
when the company faces a strong market crisis and seeks to regain profitability.
 Combination Strategy

 Another important type of corporate strategy is the combination strategy. It occurs when a company
combines other strategies instead of focusing on a single strategy.

 It is common with entities like MNCs and other large organizations. When the different business
units or divisions perform different activities, the parent entity will utilize different strategies for the
units.
 Examples
 The acquisition of Instagram by Facebook in 2012 for $1 billion exemplifies a form of
expansion strategy using horizontal integration.

 It was an important corporate strategy for Facebook since it successfully erased one of the
market competitions. In addition, Facebook continues to make strategic acquisitions.

 Facebook acquired WhatsApp in 2014, paying $19 billion to buy WhatsApp.

 Another example of an expansion strategy from Facebook is the acquisition of CRTL-labs,

a startup developing a wristband translating neuromuscular signals into digital signals or
machine-interpretable commands hence controlling digital devices by the human brain.

 It helps Facebook to boost its brain-machine interface projects.

 Walmart, one of the American MNCs famous for its chain of hypermarkets,
discount department stores, and grocery stores. However, they are now
focusing beyond the retail sector for future growth.

 Their expansion strategies include the launch of Walmart+, a subscription-

based service offering various benefits like free shipping and unlimited
grocery deliveries, opening 20 health clinics offering highly affordable
medical services, and launching a fintech startup to offer affordable
financial products.
CORPORATE STRATEGY VS
BUSINESS STRATEGY
Corporate Strategy vs. Business Strategy
Corporate Strategy Business Strategy
The whole organization is the subject Surrounds a specific unit

It includes top-level decision-making to develop

Business strategies are developed at the business unit
strategies in line with the company’s vision and
level
objectives

Streamlines the company in achieving its long-term Importance is given to achieving the objectives of
objectives business units

Designed to increase customer base and attain a

Designed for the company’s growth and profit
competitive edge

The decision-making majorly involves the people from The decision-making involves mostly middle-level
top-level management like the CEO, COO, and MD managers

Long-term in nature Short-term in nature

Expansion through vertical integration is an example Product differentiation is an example

Features of Strategic plans

The following are some of the most important characteristics of strategic plans:

1.They are long-term in nature and place an organization within its external environment.

2.They are comprehensive and cover a wide range of organizational activities.

3.They integrate, guide, and control organizational activities for the immediate and long-range future.

4.They set the boundaries for managerial decision-making. Since strategic plans are the primary

documents of an organization, all managerial decisions are required to be consistent with its goals.

Strategic plans, thus, set forth the long-term objectives, intermediate objectives, and main

purpose or the basic role of an organization.

Business-level strategy
Business strategy defines the basis on which firm will compete.
It is a business-unit-level strategy formulated by the senior managers of the unit. This strategy
emphasizes strengthening a company’s competitive position in products or services.
Business strategies are composed of competitive and cooperative strategies.
The business strategy encompasses all the actions and
approaches for competing against the competitors and the ways management addresses various
strategic issues.
As Hitt and Jones have remarked, the business strategy consists of plans of action that strategic
managers adopt to use a company’s resources and distinctive competencies to gain a competitive
advantage over its rivals in a market.

Business strategy is usually formulated in line with corporate strategy. The main focus of the
business strategy is on product development, innovation, integration (vertical, horizontal),
market development, diversification, and the like.
The competitive strategy aims at gaining a competitive advantage in the marketplace against
competitors.
Functional strategy
A functional strategy is, in reality, the departmental/division strategy designed for
each organizational function.
Thus, there may be a production strategy, marketing strategy, advertisement strategy,
sales strategy, human resource strategy, inventory strategy, financial strategy,
training strategy, etc.
A functional strategy refers to a strategy that emphasizes a particular
functional area of an organization. It is formulated to achieve some objectives of a
business unit by maximizing resource productivity.
Sometimes functional strategy is called departmental strategy since each business fu
nction is usually vested with a department
.
• For example, the production department of a manufacturing company develops a
production strategy’ as the departmental strategy, or the
training department formulates ‘a training strategy’ for
providing training to the employees.
• A functional strategy is concerned with developing a distinctive competence to
provide a business unit with a competitive advantage.
• Each business unit or company has its own set of departments, and
every department has a functional strategy. Functional strategies are adopted to
support a competitive strategy.
• For example,
a company following a low-cost competitive strategy needs a production strategy
that emphasizes reducing the cost of operations and a human resource strategy
that emphasizes retaining the lowest possible number of highly qualified
employees.
• Other functional strategies, such as marketing strategy, advertising strategy, and
financial strategy, are also to be formulated appropriately to support the
business-level competitive strategy.
Operating strategy
Operating strategy is formulated at the operating units of an
organization. A company may develop an operating strategy for
its factory, sales territory, or small sections within a
department.
Usually, the operating managers/field-level
managers develop an operating strategy to achieve immediate objec
tives
.
In large organizations, the operating managers normally take
assistance from the mid-level managers while developing the
operating strategy.
In some companies, managers “develop an operating strategy for
each set of annual objectives in the departments or divisions.
 Questions

What is Strategy? What is the role of Strategic Management

Importance of Strategy in Business
Strategy is a Science and an Art Explain
What is a Corporate strategy?
Differentiate between a corporate and a business strategy
What are the types of a Corporate Strategy explain with suitable examples.
What are the different levels of strategy for an organization.

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