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Business Policy

Introduction to

Business, Strategy, Objectives and Policy

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BUSINESS POLICY

Human occupations

Human life is built around work

Work is an essential part of life

Professionals

Employment

Business

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Business

A commercial activity to make profit

URWICK

Earning the profits can not be the objective of a business than eating is the objective of living.

Henry Ford

Mere money-chasing is not business

Being busy

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What keeps us busy

Economic activities relating to

Production

Distribution, and / or

Service

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Characteristics of business

Production, Sale, Transfer or Exchange for satisfaction of human needs

Dealings in Goods and Services

Recurrence of transactions

Profit motive

Element of risk

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Risks in business

Change in technology

Change in consumer tastes and fashions

Wrong management decisions about use of capital and other resources

Labor trouble

Shortage of raw materials

Increased competition and

Fire, theft and natural causes ( cab be taken care off by insurance )

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Business definition

Clarifies the nature of existing products, markets and functions the organization presently performs.

“Who” is being satisfied

Customer groups ( Individual customers, Individual users )

“What” is being satisfied “How” need is being satisfied

Customer needs/functions Alternative technologies

Products (Manner in which a particular function can be performed for a customer , Processes to create and add value )

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Types of business

Industry

Involves production of goods and materials

Commerce

Concerned mainly with their distribution

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Strategy

Different companies react differently to their environment and adopt course of action seemed appropriate to them, like expansion, diversification, focus, turn around, stability or divestment.

They devise new things either to counter the threats or take advantage of new opportunities and change course of action.

These courses of action are called STRATEGIES

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Strategy ( Glueck )

A strategy is the means used to achieve the ends (objectives). A strategy is not just a plan, however

A unified ( ties all the parts of the enterprise together ),

comprehensive (covers all l major aspects of the enterprise)

and integrated (all the parts of the plan are compatible with each other and fit together well ) plan that relates the strategic advantages of the organization to the challenges of the environment.

it is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization.

It is similar to the concept in sports of a game plan but game plan is not exactly a strategy. A game plan is oriented against one competitor and is only for one game , not a whole season

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A strategy for a firm is long run plan. A firm deals with a number of competitors simultaneously and with the Government, suppliers, owners, labor union ,and others.

A strategy is oriented towards basic issues such as these

1.What is our business?

2. What should it be?

3. What are our products, functions and markets?

4. What can our firm do to accomplish objectives?

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Different levels of strategy

Many companies or a group of companies work in different business lines with respect to either products/services, markets or technology.

For such companies, single strategy is not only inadequate but also inappropriate. Multiple strategies are needed at different levels.

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Example HPCL

Corporate (Strategy of expansion)

Integration, Joint ventures, strategic alliances

(SBU) Lubes LPG Retail Industrial

(2 prong strategy)

1. Expansion of distribution from Petrol pump to Bazaar trade.

2. Activating R & D

SBU is an operating division of a firm, which serves a distinct Product- Market segment or a set of well defined customers or a geographic area. SBU is given the authority to make its own strategic decisions within corporate guidelines as long as it meets corporate objectives

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Policy

An answer to many questions confronting the organization about

Product line,

Pricing

Purchasing

Wages etc

“Guide to action”It indicates how resources are to be allocated and how tasks assigned to the organization might be accomplished so that functional level managers execute the strategy properly.

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Advantages of policy

1. Delegation of duties to subordinates ( With confidence that these will be carried out along the general lines that superior wishes, in accordance with the prevailing policies

2. Coordination becomes easier to be carried out

3. Consistency and uniformity of actions taken by different members of the organization are exhibited.

Policy is not a set of inflexible rules and so should be reviewed and modified when necessary to fit new conditions in the industry.

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Objective and Policy

Goals denote what an organization hopes to accomplish in a future period of time. They represent a future state or an outcome of the efforts put in now. A broad category of financial and non financial issues are addressed by goals that a firm sets for itself.

Objectives are the ends that state specifically how a goal shall be achieved. They are concrete and specific in contrast to Goals which are generalized.

Goals may be qualitative, objectives are mainly quantitative in specifications hence measurable and comparable.

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PolicyA general rule of actionProvided guidelines which will facilitate the organization in achieving the targets

e. g. Goal- To bring inventories down; Objective- To bring inventories down, obsolete products should be disposed offPolicy- Obsolete products could be disposed off at discounted price

Objectives serve as guides in determination of policy in selecting resources and setting up programs.

They serve as useful standard when evaluating accomplishment of a business unit

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Relation of Objectives to Policies

1. A company may seek several different objectives at the same time

2. A single plan of action must be worked out which is likely to lead as near to the Goals as possible.

3. All Goals can’t be achieved within a limited period of time

4. The policies established by an organization may have to be directed primarily towards one goal and only secondary towards others.

5. One of the purposes of business policy is to resolve the conflicts which may be there between the several objectives

6. They guide the action of the organization along a path leading towards the objectives which is feasible to be achieved in the prevailing economic and social conditions

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Objectives of business

Organic Objectives

Economic Objectives

Social Objectives

Human Objectives

National Objectives

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Organic Objectives

A business enterprise– An organic entity having its own

Infancy

Childhood/ youth

Young adult /Adulthood

Maturity

Old age

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Organizational Strategic focus of anObjectives Organization

Infancy Define mission and Business definitionand search environment Products, markets, and

Functions

Childhood/ Quantitative growth Increase market shareYouth Claim more territory

Young adult/ Achieve uniqueness Redefine products, Adult and establish niche markets, functions

Qualitative growth Reap rewards, mine Gain reputation markets for benefits

Maturity Stabilize and contribute Maintain position with to society stability

Old Age Survival procreate and retrench parts that are no longer healthy

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Economic Objectives

ProfitCreation of customersInnovation

Social Objectives

Supply of desired quality of goodsAvoidance of profiteering and anti social practicesProviding employment

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Human Objectives

Fair deal to employeesHuman resource developmentParticipationJob satisfaction

National Objectives

Ensuring social justiceDevelopment of small entrepreneursProduction according to national policiesNational self reliance and export developmentDevelopment of skilled personnel

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Basic Objectives( That shapes the character of a company )

1. Stability or Dynamics– What the company want to emphasize?

2. What place or niche does the company seek in the industry?

3. What is the social philosophy of the company ?4. What is the management philosophy of the

concern ?

Emphasis on Stability vs DynamicsProgressiveness- the seeking of better waysAggressiveness- drive in making changesWillingness- to take risksWillingness- to share ownership control

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Place the company seeks in the industry

Major functions to be performedSpecialization vs. Diversification of activities

We also make steel

We only make steelQuality of price level soughtSize of operations

Social philosophy of the company

Community relationsGovernment and economic responsibilitiesCustomer serviceSupplier contactCompetitor contactRegard for employees

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Management philosophy of the company

Centralization vs. Decentralization of Decision making

Quality of Key personnel

Extent of advance planning and research going into plans

Manner of Supervision- strictness of control

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BUSINESS POLICY

 It is a capstone integrative course, which will give students an opportunity to pull together, what they have learnt in the separate business fields and utilize this knowledge in the analysis of complete business problems.

 

 Strategic management is the theoretical framework of

Business Policy

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Evolution of Business policy

(Hofer) – Four paradigm shifts1. Ad hoc policy making ( Single product line, catering to a

unique set of customers in a limited geographical area ) Anticipate future through preparation of budgets and use control systems like Capital Budgeting

2. Planned policy formulation (As expansion took place, need to integrate functional areas arose. This integration was brought about by framing policies to guide managerial action. Policy making became prime responsibility of senior management )

3. Concept of strategy ( Critical look at the basic concept of business and its relationship to the environment )

4. Strategic management ( Strategic processes of business firms and responsibility of general management )

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Nature of Business Policy

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By Christensen and others

Business policy is the study of the functions and responsibilities of Senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organization and shape its future.

1. Study of functions and responsibilities of Senior Management, related to those organizational problems , which affect the total enterprise.

2. It deals with the determination of the future course of action that an organization has to adopt.

3. It involves a choosing the purpose and defining what needs to be done in order to mould the character and identity of an organization.

4. It is also concerned with the mobilization of resources, which will help the organization, to achieve its goals.

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Senior Management- Persons permanently responsible for long term decisions, CEO, President, Executive Director, Gen Manager

Future course of action- Lays down long term plan, which the organization then follows. Have mental picture of how they want the company to become in future.

Specific direction- Wide array of decisions and actions to choose from

Resources- Financial, Material and Human

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Importance of Business Policy

For learning the Course

1. It sees to integrate the knowledge and experience gained in various functional areas of management.

2 It deals with constraints and complexities of real life business

3. It cuts across the narrow functional boundaries.

4. It makes the study and practice of management more meaningful

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For understanding business environment

1. It helps to create an understanding of how policies are formulated.

2. Managers become more receptive to ideas and suggestions of senior management.

3. Managers feel themselves a part of greater design, when they become capable of relating environmental changes to policy changes.

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For understanding the organization

1. It presents basic framework for understanding strategic decision making.

2. It brings the benefits of years of distilled experience in strategic decision making

3. It leads to an improvement in job performance

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For Personal development

Due to competition, suppose the focus changed from Production to marketing.

Beneficial for an executive to understand the impact of policy shifts on status of ones department and on position one occupies. (Redundant positions and retrenchments)

An opportunity to avoid a risk with regard to career planning and development.

Provides an adequate grounding for understanding the macro factors and their impact at micro level (IT industry better than steel)

Unique perspective to executives to understand the senior management’s viewpoint

Theoretical framework provided in the form of strategic management model

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Purpose of Business Policy

1. To integrate knowledge gained in various functional areas of management.

2. To adopt a Generalist approach to problem solving

Generalist approach,View organizational problems in totality, Understanding the repercussions of actions in one area on other and organization as a whole. Marketing problem as an organizational problem, understanding the business as a system

3. To understand complex inter linkages operating within an organization through use of systems approach to decision making and relating these to the changes taking place in external environment.

e.g Sales drop may be due to any- Competition, Quality, Distribution, Training , Recruitment

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Objectives of Business Policy

In terms of knowledge

1. Understand various concepts- Strategy, Policies, Plans and programs

2. Knowledge of external and internal environment

3. Information about environment helps in determination of mission, objectives and strategies

4. How to implement the strategy, the most complex and difficult part of strategic management

5. General approach to be adopted in problem solving and decision making

6. Survey the literature and learn about research in field of business policy

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In terms of skills

1. Develop skills to be able to apply ( Case studies )

2. Develop analytical abilities

3. Identify factors relevant to decision making, SWOT analysis, to suggest appropriate strategies and policies

4. Increase mental ability to enable link theory with practice

5. Case analysis leads to development of oral as well as written communication skills

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In terms of attitude

1. Inculcation of most important attitude as Generalist. Approach and assess the situation from all possible angles.

2. Ability to function even with partial or incomplete information. Use judgement and intuition . Act as a practitioner than a perfectionist.

3. Liberal attitude and be receptive to new ideas. Practical approach to decision making for problem solving.

4. Attitude to “ Go beyond and think” in problematic situation. Developing Creative and Innovative attitude and not by precedents and stereo typed decision

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