Introduction to Management

Chapter Summary

Strategies and policies are closely related. They provide direction for the organization and form the basis of operational plans. Strategy refers to the determination of the long-term objectives of an enterprise and the adoption of courses of action to achieve these aims, while policies are concepts that guide the thought processes and behavior of managers when they make decisions.

There are three different levels of strategy - the corporate-level, business-level and functional-level strategies. Corporate-level strategies address what businesses the organization operates in, how the strategies of those businesses can be coordinated to strengthen the organization's competitive position, and how resources are to be allocated among the businesses. The two major approaches that can be adopted by managers in developing corporate-level strategy is the corporate portfolio approach and the values-based approach.

A widely used portfolio management method is the BCG matrix, devised by the Boston Consulting Group. This matrix plots businesses against relative market share and industry growth and helps organizations evaluate their business portfolios in order to determine their profitability.

Strategic planning is the formal process of developing long-term plans which help in defining and achieving organizational goals. Strategic planning provides consistent guidelines for organizational activities. It helps managers to make appropriate decisions and anticipate problems before they arise. The strategic planning process involves six steps.

These include (i) defining the mission of the organization, (ii) determining organizational objectives, (iii) assessing organizational resources and evaluating environmental risks and opportunities, (iv) formulating strategy, (v) implementing strategy through operating plans, and (vi) monitoring and adapting strategic plans. Before devising an effective strategy to gain a competitive edge, managers need to analyze the organization's competitive situation carefully.

For this purpose, a SWOT analysis, which involves analyzing the organization's internal strengths and weaknesses and environmental opportunities and threats, is carried out. Different kinds of strategies and policies cover the areas of growth, finance, organization, personnel, public relations, products or services and marketing.

Michael Porter has outlined the business-level strategies of overall cost leadership, differentiation, and focus, that may be adopted by firms. Cost leadership strategies aim at reduction in cost. Firms which adopt a differentiation strategy attempt to offer products and services that are considered unique in the industry. A focus strategy facilitates specialization by establishing a position of overall cost leadership, differentiation, or both. A firm adopting a focus strategy attempts to serve a specific segment of the market, instead of catering to the entire market. Thus, all the major aspects of strategies, policies and planning premises have been discussed in the chapter. These concepts are of great significance in contemporary management theory.

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