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BUSINESS POLICY REVISION SHEET
WHAT IS BUSINESS POLICY?
 Business Policy is the study of the roles and responsibilities of top-level management,
the significant issues affecting organizational success and the decisions affecting
organizations in the long run
...

Module Outcome
 Identify and explain the main theories and concepts to formulate and analyze
strategic management:
1
...

2
...

3
...


What is Strategic Management?
 It is the managerial process that focuses on identifying and building competitive
advantage by generating good ideas and implementing them effectively
...
Analysis/Environmental Scanning
2
...
Strategy Implementation
4
...
They provide the guidelines as to how the company can be directed or
controlled such that it can fulfil its goals and objectives in a manner that adds to the
value of the company and is also beneficial for all stakeholders in the long term
...

1
...
1
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Mission vs
...
Objectives vs
...

Purpose: They play three critical roles:
1
...

2
...

3
...

Define: Mission, Vision, Objectives & Goals
...
Involves the
following questions: who we are? What is our purpose?
Vision: Describes what the organization would like to become in the future
...

Objectives: Are the end results of planned activities
...
Examples include: Survival, growth, profitability etc
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Summary
Mission and vision both relate to an organization’s purpose and aspirations
...

The vision statement is a narrower, future-oriented declaration of the organization’s
purpose and aspirations
...

Without goals there is no direction to measure progression
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1
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TYPES OF STRATEGY

1
...
Is concerned with the overall
purpose and scope of an organisation and how value will be added to the different
parts of an organisation
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Business Level Strategy:
Decides the tactics to beat and overcome the competition
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The concerns are about competitors,
opportunities and new products or services
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Functional Level Strategy:
Decides the operational methods to implement the tactics
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Strategy
Implementation

Strategy Formulation

1
...


BASIC MODEL OF STRATEGIC MANAGEMENT

1
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MINTZBERG ’S MODES OF STRATEGIC DECISION MAKING
Modes of Decision making
 According to Henry MintzBerg, there are three typical approaches to strategic
decision making:
1
...

 The dominant is the growth of the corporation
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Adaptive Mode:
 Mainly involves finding solutions to existing problems within the
organization rather than proactively searching for new opportunities
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Planning Mode:
 This involves systematic gathering of appropriate information for
situation analysis
...

4
...

 With this mode, the top management has a reasonably clear idea of
the corporation’s missions and objectives
...
5
...

Strategic Planning
 Can be considered an approach to strategic decision making
...
Change the direction and performance of a business
2
...
Create a common framework for decision making in the organization
4
...
Train managers to develop better information to make better decisions
6
...
Consistent, Long-term goals 2
...
Resources
and capabilities and 4
...

(LO2) Evaluate why each of these
elements is important
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Without goals there is no direction to
measure progresses
...
Without structured understanding of its
industry the firm is likely to make the wrong
moves
...
Without assessment of the fundamental
Resources & Capabilities to accomplish the
goal, there are little chances for success
...
Without implementing correctly the actions
that follow from these elements, failure is
highly likely
...

The elements that are more likely to drive
prolonged success are the elements of
successful strategies, i
...
the elements you
must control for to formulate and implement a
successful strategy (or analyse the origin of
success or lack thereof of a given strategy)
(LO4) Identify strategy as the necessary
condition for business and personal
success
...
Without a sound strategy (and
strategic management), a business can be
successful by pure luck
...


Lecture 2: Strategic Decision Making
Processes
(LO1) Defining the nature of strategic
decisions
...

(LO2) Getting familiar with different
modes of strategic decision making
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Some made in a flash by an entrepreneur;
some are developed out of a series of
incremental choices over time
...
A fourth mode, logical
Incrementalism, was added later by Quinn
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Strategic decision making processes are
activities that govern the formation and
implementation of strategies at business and
corporate levels
...
Research
shows that strategy processes have an impact
on performance of firms
...

Strategic planning (or audit) is one of the most
popular tools of strategic decision making
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Evaluate current
performance results; 2
...
Scan and assess the external
environment; 4
...
Analyse strategic factors to a)
pinpoint problem areas and b) review
corporate mission and vision; 6
...
Implement; 8
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A firm’s strategy is a theme to guide and unify
action in organizations
...

(LO6) Understand the importance of
strategic management for organizational
success
...
Organizations that
engage in strategic management generally
outperform those that do not
(LO7) Know the stages & elements
involved in strategic management of
organizations
...


2
...
Management is
responsible for running the enterprise, but the governing body ensures that it is
running in the right direction and being run well
...


2
...
Many problems
have arisen due to the separation of ownership and control
...
g
...
Due to the many problems which have arisen in the past, corporate governance has
been developed
...






Agency Theory
An agent is employed by a principal to carry out a task on their behalf
...

Agency theory problems arise in corporations because top management is not willing
to accept responsibility for their decisions unless they own a substantial amount of
stock in the corporation
...

Examples:
 Principals: Shareholders
 Agents: Company Executives, Directors
...
The problems that arise when the desires or
goals of the principal and agent are in
conflict
...

 Agents Objectives: Desire for high
salary, large bonus, higher status
...

2
...
Because of different risk tolerances,
the principal and agent may each be
inclined to take different actions
...
The dilemma
exists because sometimes the agent is motivated to
act in his own best interests rather than those of
the principal
...

This theory is opposite of Agency Theory
...
Act in the best
interest of the corporation more than self-interest
...
The agency theory believes that managers if left unattended will make
decisions based on self-interest
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The stewardship theory believes that if given authority and responsibility, the
agent can act on behalf of the principle
...
It also looks at how these relationships affect
how the organization conducts its activities
...


Transaction Cost Economics
Transaction cost economics view the firm itself as a governance structure that can
help align the interests of directors and shareholders
...
2
...
To hire the CEO or general manager of the business
...
Assess the overall direction and strategy of the
business
...
Develops and analyses strategy (mission, vision, etc
...
Hires and fires the CEO and top management
3
...
Approves all decisions that might affect the long-run
performance of the firm (M&A, compensation, capital)
5
...
Assures that the corporation is managed in accordance
with state laws, security regulations and conflict of
interest situations
...
3
...
Institutional investors active on boards
2
...
Smaller boards
4
...
Shareholders may begin to nominate board members
6
...
Proxy access
8
...
More women/ minorities on boards
2
...
More board accountability
4
...
Smaller boards
6
...


2
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INTERNATIONAL CORPORATE GOVERNANCE
Understand the differences in corporate governance between countries (boards, codes,
CEOs)

Attribute

UK

US

Approach to
corporate
governance

Principle-based

Rule-based


Pros


Standard of practice can be
encouraged to be improved over
time
...







Cons

Sets no hard and fast rules


Regulation

Cadbury reforms (1992)
“comply or explain” provision
Many other reforms since

Requires all firms to ‘play by the rules’,
i
...
exhibit minimum standards of
practice
...

Reduced concerns about suspected
collusion between auditors, bankers, and
management
In order to be accepted by majority of
firms, the standards enforced by the
rules have to be the minimum
acceptable practices
...

Sarbanes-Oxley Act (2002)

Learning Objectives
Lecture 3: Issues In Corporate
Governance

Lecture 4: International Corporate
Governance

(LO1) Defining the field of Corporate
Governance
...


(LO1) Understand corporate governance
lifecycle
...

The central governance challenge of
separation of firm ownership from firm control
It results from dispersed ownership and
individual shareholders having little impact on
day to day management of the firm
...
It results in an ‘agency’
conflict between the principal (shareholder)
and the agent (manager)
...

In Strategic Management, we define the role
of the board of directors in three main tasks:
1
...
Evaluate and influence management’s
proposals
3
...

(LO4) Discussing trends in corporate
governance
...


(LO2) Explore the diversity in corporate
governance
...
Nations, regions and cultures
2
...
Industries
4
...

However, with a closer look, notable
differences exist between US and UK and
between the countries of Continental Europe
(LO4) Compare different corporate and
institutional forms in the US and UK,
Europe and Asia Pacific
...


3
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1
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

Notes Cover:
 Lecture 5: Business Ethics, CSR and Sustainability
FRIEDMAN’S VIEW VS
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CSR is a voluntary firm action
...

He stated the primary goal of business is profit maximization, not spending
shareholder money for the general social causes
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

Carroll’s View
Carroll, however, insisted a corporation has four types of responsibilities
...
Economic responsibility: To be profitable
...
Legal responsibility: To obey the laws set
forth by society
...
Ethical responsibility: That is to do what is
right even when business is not compelled to
do so by law
...
Philanthropic responsibility: Best described
by the resources contributed by corporations
toward social, educational, recreational and/or
cultural purposes
...
2
...
3
...
Examples of key stakeholders are creditors,
directors, employees, suppliers etc
...
Primary stakeholders have a direct connection with the corporation and have
sufficient bargaining power to directly affect corporate activities
...
Secondary stakeholders have an indirect stake in the corporation but are also
affected by corporate activities
...
Estimate the effect on each stakeholder from a particular strategic decision
...

Companies need to adopt broader social responsibilities to the society that extend beyond
making a profit
...
Economic 2
...
Ethical
and discretionally and 4
...

Multidimensional view of sustainability (triple bottom line approach) encompasses
1
...
Economical; and
3
...

There are a number of reasons why CSR is important to companies: it can allow them to
enter new markets, improve reputation, and attract new customer segments, capital and
talent
...

Stakeholders analysis is the identification and evaluation of corporate stakeholders and their
effect
1
...
Secondary stakeholders have only an indirect stake in the firm
3
...

What is unethical behaviour in one environment may be a norm in another, and depends on
cultures and norms, or the country governance system (rule-based or relationship-based)
...


4
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1
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SCANNING THE SOCIETAL ENVIRONMENT

PESTEL Analysis

What is PESTEL Analysis?
PESTEL analysis is one important tool
that executives can rely on to organize
factors within the general environment
and to identify how these factors
influence industries and the firms
within them
...
In
case an organization fails to take into
account any one of these factors, it
may fail to plan and operate properly
...
2
...
E
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Threat of new entrants (barriers to entry)
2
...

3
...
Bargaining power of buyers
5
...

Helps determine an industry's weaknesses and strengths
...

Role of external analysis
...
This allows you to determine
the firm’s competitive advantages
...

(LO2) Frameworks and tools for environmental scanning - PESTEL analysis
PESTEL :
1
...
Economical
3
...
Technological
5
...
Legal Forces Analysis
(LO3) Frameworks and tools for environmental scanning - 5-Forces analysis
Porter’s 5 Forces: Helps determine an industry's weaknesses and strengths
...
Competition in the industry
2
...
Power of suppliers
4
...
Threat of substitute products

5
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1
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5
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



Notes Cover: Lecture 7 - Internal Analysis
RESOURCES & CAPABILITIES & COMPETENCIES
Resource: Are productive assets
...

Resources
Types of resources:
1
...

 Tangible assets increase a company's market value
...

2
...

 Essential to the continued operation of a company
...

Capabilities & Competencies
Competency refers to the ability of a firm to carry out an activity well
...

A firms capability is either:
1
...

2
...
These provide the basis for
competitive advantage
...

VRIO analysis stands for four questions
that ask if a resource is:
1
...
Rare?
3
...
And is a firm organized to capture
the value of the resources?
A resource or capability that meets all four
requirements can bring sustained
competitive advantage for the company
...
3





VALUE CHAIN ANALYSIS
Tool used to analyze internal firm activities
...
e
...
In other words, by looking into internal
activities, the analysis reveals where a firm’s competitive advantages or
disadvantages are
...
When a company is
capable of producing goods at lower costs than the market price or to provide
superior products, it earns profits
...
Firm’s capabilities are what the firm
can do with the resources at hand
...
VRIO/VRIN/VRIND
frameworks are used to assess firm’s competitive advantage and how it can be sustained
...
The process of appraising
R&C is composed of 3 steps:
1
...
Appraise
3
...

A Value Chain is a full set of value-creating activities; it is used to identify R&C needed to
deliver key success factors:
 Primary activities: logistics, operations, marketing and sales, service
 Support activities: firm infrastructure, HR, Technology, Procurement

6
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1
...
2
...

What should be done with the SWOT analysis information?
This is where the TOWS matrix becomes a useful tool
...
Example below
...
3
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Types of competitive advantage:
1
...

2
...

 Cost competitive advantages can easily disappear with the
introduction of a new competitor or new technology
...
Cost Leadership Strategy
 Objective: Become the lowest-cost
producer in the industry
...

 Provides defence against
competitors
 Provides a barrier to entry
 Generates increased market share
3
...
Differentiation Strategy
 Involves the creation of a product or
service that is perceived throughout
the industry as unique
...
Differentiation Focus Strategy
 Concentrates on a particular
buyer group, product line segment,
to serve the needs of a narrow
strategic market more effectively
than its competitors
...

Strategy formulation, often referred as strategic planning, is concerned with developing a
corporation mission, objectives, strategies, and policies
...

SWOT is a start of strategic analysis
...

(LO3) Discussing generic competitive strategies identified by M
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Competitive strategies
...
What the competitive advantage is (profitability higher than industry average)
2
...
)
3
...

4
...

5
...
Firms can be stuck in the middle in as much as they are
unable to make trade-off in their activities
...

Cooperative strategies
...
A company can
also use cooperative strategies to gain competitive advantage within an industry by working
with other firms
...
LECTURE 9 CONTENT


Notes Cover: Lecture 9 - Corporate Strategy

7
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

GROWTH STRATEGIES
Seeking to increase the organizations business by expansion into new products and
markets
...
Vertical Growth/Integration
 Integrating successive stages in the production and marketing process
under the ownership or control of a single management organization
...

 Backward Integration: When a company acquires its input supplier it
is called backward integration
...

2
...
An example of
horizontal integration would be Apple entering the search-engine market
or a new industry related to laptops and smart phones
...
When all producers of a good or service in a market merge,
it is the creation of a monopoly
...

1
...

2
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7
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INTERNATIONAL ENTRY OPTIONS FOR HORIZONTAL GROWTH
 Exporting
 Licensing
 Franchising
 Joint Venture
 Acquisitions
 Green-Field Development
 Production Sharing
 Turn-key Operations
 BOT Concept
 Management Contracts
Learning Objectives
Lecture 9: Corporate Strategy

(LO1) Distinguishing different levels of strategy formulation: corporate strategy,
business strategy and functional strategy
The strategy formulation happens at three distinct levels: Corporate Strategy (overall
purpose and scope of a firm), Business Strategy (how to compete successfully in its
particular market) and Functional Strategy (how to manage resources, processes and
people)
(LO2) Corporate Strategy
Corporate Strategy addresses three key issues facing the corporation as a whole
 Directional strategy, or the firm’s overall orientation towards growth, stability or
retrenchment
 Portfolio analysis, or the industries or markets in which the firm competes through its
products and business units
 Parenting strategy, or the manner in which management views a corporation in
terms of resources and capabilities that can be used to build business unit value as
well as generate synergies across business units
(LO3) Discussing different growth strategies: concentration & diversification
The two basic Concentration strategies are vertical growth (taking over the function
previously achieved by a supplier or a distributor) and horizontal growth (i
...
expanding its
operations into other geographic locations and/or by increasing the range of products and
services offered to current markets)
...

Corporate Parenting involves three analytical steps:
1
...
Examine each business unit (or target firm) in terms of areas in which performance
can be improved
3

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