Strategic Management Concepts

QUAID-E-AZAM UNIVERSITY ISLAMABAD DEPTT. ADMIN SCIENCES Assignment # 01 BUSINESS POLICY

What is Strategic Planning? (The Strategic Planning Process, n.d.) Strategic planning is the process that clearly defines business objectives and assesses both the internal and external situation to formulate and implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track. The Strategic Planning Process can be shown with the help of following process: Mission & Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control The image of Strategic Planning Process (Strategic Planning Process, n.d.)

What is a vision? Visualization or mental picture is the literal meaning of vision. A vision describes how an organization views itself and where it will be in next 3 or 5 or 10 years and so on. A vision statement indirectly describes the futuristic view of an organization e.g. vision of Mobilink as described in (Mobilink GSM, n.d.) is “To be the leading telecommunication services provider in Pakistan by offering innovative communication solutions for the customers while exceeding shareholder value and employee expectations.” It is a broad view of a company’s futuristic views.

What do you mean by mission of a company? The literal meaning of mission is duty, job or operation. Hence mission of a company is the reason of existence of a company. As written by Wheelen and Hunger (2002) “An organization’s mission is the purpose or reason for the organization’s existence.” The mission of a company usually tells what the company is providing i.e. either it is some good or service. The mission of Mobilink as described in (Mobilink GSM, n.d.) is “To be the unmatchable mobile

system of communications in Pakistan. It provides the best value to its customers, employees, business partners and shareholders.” A well defined mission statement speaks a lot about the company and bestows it with honor by separating it from other companies of its own type. It also identifies the scope of company’s operations by defining the products and targeted market.

What do you mean by tactics? Tactic means the approach towards workflow or the method of performing things. In terms of strategic management we have a solid definition given by Wheelen and Hunger (2002, p.123) “A tactic is a specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action”. Tactics are narrower in scope and shorter in their time as compared to strategies. There are two types of tactics as given by Wheelen and Hunger (ibid) • Timing tactic • Market Location tactic

What is a budget? As the name indicates, a budget is a financial or monetary plan. It lists down the resources available and cost of each program. Wheelen and Hunger (2002, p.15) says that “a budget lists the detailed cost of each program”. The budget thus helps the management in planning for its expenses and setting cost limits using the available resources.

What is program? A program means agenda, plan, curriculum or syllabus. It defines and describes the work flow of an action or a task. Wheelen and Hunger (2002, p.15) defines a program in the following words “A program is a statement of activities or steps needed to accomplish a single use plan. It may involve restructuring of organization, changing the company’s internal culture or beginning a new research effort.” Hence we may conclude that it is a component of a project which describes the workflow throughout.

What is a policy? Policy means guiding principle or course of action. Wheelen and Hunger (2002, p.14) defines a policy in the following words “A policy is a broad guideline for decision making that links the formulation of strategy with its implementation. Companies use policies to make sure that employees throughout the company make decisions and take actions that support the company’s mission, objectives and strategies. ” Hence a policy in collaboration with company’s objectives and mission is a guiding principle for employees which define them their limits of action. It has lesser scope than a strategy.

What is meant by the term goals? Goal means objective or target. Every corporation that exists in this world has some goals to achieve. Some of them maybe general and some are specific. A general goal maybe to be the market leader of the oil company but a specific goal is the achievement of getting additional profit by achieving sales target. Wheelen and Hunger (2002, p.12) defines goals in the following words “a goal is an open ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time period for completion.” Hence a goal has •

No quantification

•

No time period

What are the objectives? Objective means the purpose. Sometimes it is interchangeably used with the word goal but in the language of strategic management it has a different meaning. According to Wheelen and Hunger (2002, p.12) “Objectives are the end result of a planned activity. They state what is to be accomplished by when and should be quantified if possible”

What is a strategy? Literally, strategy means a plan or policy but in terms of strategic management it has slightly different meanings. It means a comprehensive and long term plan. Wheelen and Hunger (2002, p.13) defines a strategy in the following words “a strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives” There are three types of strategies i.e. • Corporate Strategy • Business Strategy • Functional Strategy

What is a procedure? Procedure means mode of operation or course of action. Wheelen and Hunger (2002, p.15) defines a procedure in the following words “system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the corporation’s programs” Often the companies name their standard procedures as “Standard Operating Procedure or SOP”. These procedures are combined, compiled and published within the company for taking guideline through this manual. An example is the SOP of Mobilink offices.

What is Business Policy? The term policy means guideline or a course of action. It is actually a general phenomenon. Wheelen and Hunger (2002, p.14) wrote that “Business policy has a general management orientation and tends primarily to look inward with its concern for properly integrating the corporation’s many functional activities.” Hence business policy is the general policy which determines the limits of employees towards different actions. It is general in nature and is relatively simple.

What is Strategic Management? Strategic management in contrast with business policy is a technical approach having five steps models. It determines the long run performance of a company ad Wheelen and Hunger (2002, p.02) wrote that “strategic management is that set of managerial decisions and actions that determine the long run performance of a company. It includes environmental scanning, strategy formulation, strategy implementation and evaluation and control.” Therefore strategic management if compared to business policy • Determines the long run performance of a company • Has 5 steps model • Is more technical approach as compared to business policy • It incorporates long range planning and strategy

What are the benefits of strategic management?

Studying different books has revealed on me that the organizations that incorporate strategic management are more efficient and effective performer as compared to those that do not incorporate it in their business. Lets take an example; “Karger and Malikstudied studied 273 firms in the chemicals and drugs, electronics, and machinery industries. All were $ 50 to 500 million corporations. Those practicing strategic management were contrasted with those who didn’t (planners with no planners). Very significantly differences were found in the machinery and chemical industries and some positive findings in the drug and electronics group” Glueck (1980, p.17). “Hegarty studied 46 firms in Fortune’s second 500 companies from 1970 to 1973. he found that the more directly the firm linked its objectives to its strategies and thus formalized its strategic management process, the more the firm prospered.” Glueck (1980, p.19). Hence there is a difference between the firms that apply strategic management and those who do not. As described by Glueck (1980, pp.16-17) there are the following advantages of strategic management: • Strategic management helps analyze and scan the environment therefore future problems and opportunities could be well anticipated • It allows a firm’s top management to anticipate changes and provide track and control for the enterprise • It provides clear cut mission, vision and objectives of enterprise to all the employees • It allows a firm to take decisions on the basis of long range forecast • It is widely practiced in industry • Businesses where strategic management is applied are better performers and their employees According to Wheelen and Hunger (2002, p.4) strategic management has the following advantages: • The followers of strategic management are the outperformers • It provides clearer sense of company’s strategic vision • It helps understanding the rapidly changing environment

What is general environment? Glueck (1980, pp. 93-102).General environment is the external environment before an organization starts strategy formulation; it must scan the external environment to determine the strengths and weaknesses. Wheelen and Hunger (2002, p.52). “Environmental scanning is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the corporation”. There are some important variables in external environment. • Economic forces. • Technological forces. • Political – legal forces. • Socio – cultural forces. • Demographic forces. Lets have a brief idea of each of them.

Economic Forces Economic forces include the following; • • • •

GDP trends. Interest rates. Money supply in the economy. Inflation rate.

• • • • •

Unemployment level. Wage/price control. Devaluation /revaluation. Energy availability and cost. Disposable income.

Technological forces Technological forces include the following; • New product development. • Availability and cost of raw material. • Availability and cost of money. • Availability and cost of labor. • Technological changes.

Political Legal Forces Political legal forces include the following; • Government subsidies. • Government purchases. • Policy changes. • Environmental protection laws. • Tax laws. • Special incentives. • Stability of Government.

Socio cultural/Demographical Forces Socio cultural/demographical include the following; • Life stile changes. • Career expectations. • Population growth rate. • Age distribution of population. • Regional shift in population. • Life expectancy. • Birth rate. • Death rate. • Educational level.

Market Forces Market forces include the following; • Changes in population. • Age shifts. • Income distributions. • Product/service life cycle. • Entry and exit of competitors. • Availability of substitutes. • Strategic changes by competitors.

What are the types of business policy? Wheelen and Hunger (2002, p.13) There are three types of business policies; i) Corporate policy ii) Business policy

iii)

Functional policy

Corporate policy Corporate policy describes a companies overall direction in terms of its general attitude towards growth and the management of its various businesses and product lines. It typical fit within the three main categories of stability, growth and retrenchment.

Business policy Business policy usually occurs at the business unit or product level and it emphasizes improvement of the competitive position of a corporation products or services in the specific industry or market segment served by that business unit. Business strategies may fit within the two overall categories of competitive or cooperative strategies.

Functional policy Functional policy is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resources productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.

What is the strategic management process? Wheelen and Hunger (2002, pp. 9-16). Strategic management process consists of four basic elements. • Environmental scanning. • Strategy formulation. • Strategy implementation. • Evaluation and control.

Environmental Scanning In the Environmental scanning we monitor, evaluate and disseminate information from the external and internal environment to the corporation. The external environment consists of forces such as economic forces, technological forces, political forces, socio cultural forces and demographical forces. The internal environment consists of variables that are within the organization. They include the corporation culture, people and resources. The simplest way of scanning the environment is through SWOT analysis in which the strengths, weakness, opportunities and threats or an organization are analyzed because they are the strategic factors of a company.

Strategy Formulation Strategy formulation is the development of long range plans of a company in order to gain effective and efficient business procedure. Strategies are formulated by keeping in view the long term prospective of a firm. It includes the following steps:

Mission Objectives

Strategies

Policies Strategy Implementation Strategy implementation is that step in which the plans and policies are actually implemented through the help of programs budgets and procedures.

Programs A program is a subset of a big project. It determines the set of activities that are undertaken while accomplishing a plan.

Budget A budget is a financial plan of an organization which is formed on the basis of funds available.

Procedures A procedure is a set of instructions which are required to do a job. Mostly, the companies make their “standard operating procedures” for the sake of convenience of their employees.

Evaluation and Control Evaluation and control is the final step in the strategic management process. It determines the effectiveness of the strategies implemented. It helps to determine the performance results and actual performance is measured through effective evaluation process.

What is competitive environment or 5 forces model?

The image of the five forces model (Five Forces Analysis, n.d.)

(Marketing Teacher, n.d.) The five forces model is also known as Porter’s model. It was developed by Michael E. Porter of Harvard Business. It is a model for the industry analysis and business strategy development. Wheelen and Hunger (2002, pp. 60-63) It highlights five key forces namely: 1. 2. 3. 4. 5.

Threats of Entry The power of buyers The power of suppliers The threat of substitutes Competitive rivalry

Threats of Entry New industry entrants usually bring new threats to the existing companies because they may have such a competitive advantage that they may capture the market share of existing companies therefore they are a big threat. The entry barriers or obstructions may provide a safe side to the existing companies. The possible barriers may be: • • • • • •

Economies of scale The cost of entry Distribution channels Cost advantages not related to the size of the company Government action Product differentiation

The Power of Buyers Buyers are the persons for whom the businesses are operated. There is no business which could survive without having any buyer for their products. Therefore through the forces of demand and supply, buyers have the power to bring down the prices by lowering their demand and inflate the prices by increasing their demand. Buyers are truly called powerful if they fulfill the following factors • • •

This is high where there a few, large players in a market e.g. the large grocery chains. If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. Changing suppliers cost is little

The Power of Suppliers The power of suppliers tends to be a reversal of the power of buyers. Suppliers are the providers of goods. They also have the ability to change the prices i.e. through increasing the supply or viceversa. Either of the situations can bring down the prices and may also raise it to the higher levels. The power of suppliers is high when: • • • • •

Where the switching costs are high e.g. Switching from one construction company to another Supplier is a renowned and strong brand e.g. Dell There is a possibility of the supplier integrating forward Customers are fragmented so that they have little bargaining power e.g. Gas/Petrol stations in remote places. Substitutes are few or not at all available e.g. Microsoft windows

The threat of substitutes

Substitutes are those products which could be used alternatively with each other e.g. Canderell sweetener is widely used as a substitute of pure white sugar. The threat of substitute may have a great effect on industry. E.g. Fanta and Mirinda are the substitutes of each other. As the price of Fanta goes down, the Mirinda drinkers will soon switch over to Fanta. Therefore in order to save its market, Mirinda will also have to lower down its price. The threat of substitute increases when: • • •

Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists Where there is generic substitution (competing for the currency in your pocket)

Competitive Rivalry Wheelen and Hunger (2002, p.62) state that according to Porter rivalry is related to presence of several factors such as • • • • • • •

Number of competitors Role of industry growth Product or service characteristics Amount of fixed costs Capacity Exit barriers Diversity of rivals

There is the threat of substitute where entry is easy. This is why it is always seen in the center of the diagram.

References Five Forces Analysis [Image] (n.d.). Retrieved September 13, 2008, from http://www.marketingteacher.com/Lessons/lessonfivefoces.htm Glueck, F., William. (1980). Environmental Analysis and Diagnosis. In Business Policy and Strategic Management(3rd Ed.). (pp. 88-102). USA: McGraw Hill. Glueck, F., William. (1980). Why Strategic Management. In Business Policy and Strategic Management(3rd Ed.). (pp. 16-19). USA: McGraw Hill. Mobilink GSM (n.d.) Mobilink Mission. Retrieved September 13, 2008, from http://www.mobilinkgsm.com/mission Mobilink GSM (n.d.) Mobilink Vision. Retrieved September 13, 2008, from http://www.mobilinkgsm.com/vision Quick MBA Knowledge to Power Your Business (n.d.). The Strategic Planning Process. Retrieved September 13, 2008, from http://www.quickmba.com/strategy/strategic planning The

Strategic Planning Process [Image] (n.d.). Retrieved http://www.quickmba.com/strategy/strategic planning

September

13,

2008,

from

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