Polytechnic University of the Philippines

College of Accountancy and Finance

Department of Accountancy
A.Y. 2018-2019

WRITTEN REPORT
BUSINESS POLICY
AND
STRATEGY

Group 2

Bino, Anzelmo D.

Bondoc, Liezel Lyn C.

Borja, Set A.

Capon, Rochelle

Conejos, Moirla Dawn

Cusi, Valerie Joy

Dancel, Jeniffer S.

April 16, 2019

 TABLE OF CONTENTS

Page

I. Strategic Management: An Overview 1

A. Strategic Management Process 3

B. Defining the Organization’s: 4

 Vision 4

 Mission 5

 Goals 7

 Objectives 8

 Plans 11

C. Selecting a Strategy 12

D. Model of the Strategic Management Process 14

E. Strategic Management and Planning 17

 Purpose 17

 Methods 17

 Effect of the External Environment on Planning 17

 Understanding and Managing Risk 20

F. Distinguishing Among Corporate, Strategic and Functional Level Strategies 22

G. Forecasting the Future for Nations, Industries, Organizations and Workforce

for Changes, Developments and Opportunities 31

II. Review Exercises 35

III. References 39
I. STRATEGIC MANAGEMENT: AN OVERVIEW

Strategy is a Greek Word. The word “strategy” is derived from the word “stratiyeia,”
comprising of two Greek words: “stratos” meaning army and “ago” which in ancient
Greek denotes guiding, moving, and leading. ... The very stratagem the ancient
generals used to deploy their forces and defeat the enemy, is “strategy.”

Strategic management is a set of managerial decisions and actions that determines

the long-run performance of a corporation. It includes environmental scanning (both
external and internal), strategy formulation (strategic or long-range planning), strategy
implementation, and evaluation and control. The study of strategic management,
therefore, emphasizes the monitoring and evaluating of external opportunities and
threats in light of a corporation’s strengths and weaknesses. Originally called business
policy, strategic management incorporates such topics as strategic planning,
environmental scanning, and industry analysis.

Phases of Strategic Management

Phase 1: Basic financial planning. Managers initiate serious planning when they are
requested to propose the following year’s budget. Projects are proposed on the basis of
very little analysis, with most information coming from within the firm. The sales force
usually provides the small amount of environmental information. Such simplistic
operational planning only pretends to be strategic management, yet it is quite time
consuming. Normal company activities are often suspended for weeks while managers
try to cram ideas into the proposed budget. The time horizon is usually one year.

Phase 2: Forecast-based planning. As annual budgets become less useful at

stimulating long-term planning, managers attempt to propose five-year plans. At this
point they consider projects that may take more than one year. In addition to internal
information, managers gather any available environmental data—usually on an ad hoc
basis—and extrapolate current trends five years into the future. This phase is also time
consuming, often involving a full month of managerial activity to make sure all the
proposed budgets fit together. The process gets very political as managers compete for
larger shares of funds. Endless meetings take place to evaluate proposals and justify
assumptions. The time horizon is usually three to five years.

Phase 3: Externally oriented (strategic) planning. Frustrated with highly political yet
ineffectual five-year plans, top management takes control of the planning process by
initiating strategic planning. The company seeks to increase its responsiveness to
changing markets and competition by thinking strategically. Planning is taken out of the
hands of lower-level managers and concentrated in a planning staff whose task is to
develop strategic plans for the corporation. Consultants often provide the sophisticated
and innovative techniques that the planning staff uses to gather information and
forecast future trends. Ex-military experts develop competitive intelligence units. Upper-
level managers meet once a year at a resort “retreat” led by key members of the
planning staff to evaluate and update the current strategic plan. Such top-down planning
emphasizes formal strategy formulation and leaves the implementation issues to lower
management levels. Top management typically develops five-year plans with help from
consultants but minimal input from lower levels

Phase 4: Strategic management. Realizing that even the best strategic plans are
worthless without the input and commitment of lower-level managers, top management
forms planning groups of managers and key employees at many levels, from various
departments and workgroups. They develop and integrate a series of strategic plans
aimed at achieving the company’s primary objectives. Strategic plans at this point detail
the implementation, evaluation, and control issues. Rather than attempting to perfectly
forecast the future, the plans emphasize probable scenarios and contingency strategies.
The sophisticated annual five-year strategic plan is replaced with strategic thinking at all
levels of the organization throughout the year. Strategic information, previously
available only centrally to top management, is available via local area networks and
intranets to people throughout the organization. Instead of a large centralized planning
staff, internal and external planning consultants are available to help guide group
strategy discussions. Although top management may still initiate the strategic planning
process, the resulting strategies may come from anywhere in the organization. Planning
is typically interactive across levels and is no longer top down. People at all levels are
now involved.

Benefits of Strategic Management

Strategic management emphasizes long-term performance. Many companies can

manage short-term bursts of high performance, but only a few can sustain it over a
longer period of time. To be successful in the long-run, companies must not only be
able to execute current activities to satisfy an existing market, but they must also adapt
those activities to satisfy new and changing markets.

The three most highly rated benefits of strategic management to be:

 Clearer sense of strategic vision for the firm.

 Sharper focus on what is strategically important.
 Improved understanding of a rapidly changing environment.
A. STRATEGIC MANAGEMENT PROCESS

The strategic management process means defining the organization’s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and

industries in which the organization is involved; appraises its competitors; and fixes
goals to meet the entire present and future competitor’s and then reassesses each
strategy.

Strategic management process has following four steps:

1. Environmental Scanning - Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes. It helps in
analyzing the internal and external factors influencing an organization. After
executing the environmental analysis process, management should evaluate it on a
continuous basis and strive to improve it.

2. Strategy Formulation - Strategy formulation is the process of deciding best course

of action for accomplishing organizational objectives and hence achieving
organizational purpose. After conducting environment scanning, managers formulate
corporate, business and functional strategies.

3. Strategy Implementation - Strategy implementation implies making the strategy

work as intended or putting the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.

4. Strategy Evaluation - Strategy evaluation is the final step of strategy management

process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational strategy
as well as its implementation meets the organizational objectives. These
components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a
strategic management plan will revert to these steps as per the situation’s
requirement, so as to make essential changes.
B. DEFINING THE ORGANIZATION’S VISION, MISSION, GOALS,OBJECTIVES
AND PLANS

Most integrative Fewest in number

Vision

Mission

Goals

Objectives

Most specific Plans Greatest in

number
Hierarchy of Strategic Intent (Miller)

Vision is the broad category of long-term intentions that the organization wishes to
pursue.
Mission is a statement that specifies the purpose, identity, and the basic values of the
organization.
Goals indicate the route the organization takes to achieve its vision and mission.
Objectives are the operational definition of organization’s goals.
Plans are specific actions that will taken by an organization in order to achieve its
objectives.

 VISION

Vision statement presents the values, philosophies and aspirations that guide
organizational action. In fact it motivated and inspires the current and future employees
of the organization. The organizational vision has the potential power to focus the
collective energy of insiders and to give outsiders a better idea of what an organization
really is.

Characteristics of Vision

- Share Views: A vision statement is developed through sharing views across an

organization. However, the founder will have a powerful impact on the others.
 - Convincing Nature: A vision statement should be able to convince others in the
organization.
- Reflect New Realities: A vision statement should recognize the complexity of
changing business trends and it should be able to reflect new realities.

 MISSION

“A mission statement is an enduring statement of purpose”. A clear mission statement is

essential for effectively establishing objectives and formulating strategies.

A mission statement is the purpose or reason for the organization’s existence. A well-
conceived mission statement defines the fundamental, unique purpose that sets it apart
from other companies of its type and identifies the scope of its operations in terms of
products offered and markets served. It also includes the firm’s philosophy about how it
does business and treats its employees. In short, the mission describes the company’s
product, market and technological areas of emphasis in a way reflects the values and
priorities of the strategic decision makers.

Characteristics of Mission Statement

A good mission statement should be short, clear and easy to understand. It should
therefore possess the following characteristics:

- Not lengthy: A mission statement should be brief.

- Clearly articulated: It should be easy to understand so that the values,
purposes, and goals of the organization are clear to everybody in the
organization and will be a guide to them.
- Broad, but not too general: A mission statement should achieve a fine balance
between specificity and generality.
- Inspiring: A mission statement should motivate readers to action. Employees
should find it worthwhile working for such an organization.
- It should arouse positive feelings and emotions of both employees and
outsiders about the organization.
- Reflect the firm’s worth: A mission statement should generate the impression
that the firm is successful, has direction and is worthy of support and investment.
- Relevant: A mission statement should be appropriate to the organization in
terms of its history, culture and shared values.
- Current: A mission statement may become obsolete after some time. As Peter
Drucker points out, “Very few mission statement s have anything like a life
expectancy of thirty, let alone, fifty years. To be good enough for ten years is
probably all one can normally expect”. Changes in environmental factors and
organizational factors may necessitate modification of the mission statement.
 - Unique: An organization’s mission statement should establish the individuality
and uniqueness of the company.
- Enduring: A mission statement should continually guide and inspire the pursuit
of organizational goals. It may not be fully achieved, but it should be challenging
for managers and employees of the organization.
- Dynamic: A mission statement should be dynamic in orientation allowing
judgments about the most promising growth directions and the less promising
ones.
- Basis for guidance: Mission statement should provide useful criteria for
selecting a basis for generating and screening strategic options.
- Customer orientation: A good mission statement identifies the utility of a firm’s
products or services to its customers, and attracts customers to the firm.
- A declaration of social policy: A mission statement should contain its
philosophy about social responsibility including its obligations to the stakeholders
and the society at large.
- Values, beliefs and philosophy: The mission statement should lay emphasis
on the values the firm stands for; company philosophy, known as “company
creed”, generally accompanies or appears within the mission statement.

Components of a Mission Statement

Mission statements may vary in length, content, format and specificity. But most agree
that an effective mission statement must be comprehensive enough to include all the
key components. Because a mission statement is often the most visible and public part
of the strategic management process, it is important that it includes all the following
essential components:

- Basic product or service: What are the firm’s major products or services?
- Primary markets: Where does the firm compete?
- Principal technology: Is the firm technologically current? Product or service,
markets and technology describe the company’s activity.
- Customers: Who are the firm’s customers? “The customer is our top priority”. A
focus on customer satisfaction causes managers to realize the importance of
providing an excellent customer service. So, many companies have made
customer service a key component of their mission statement.
- Concern for survival, growth and profitability: Is the firm committed to growth
and financial soundness? It explains about the policy of sustainable growth and
development. Every firm has to secure survival through growth and profitability.
- Company philosophy: What are the basic beliefs, values, aspirations and
ethical priorities of the firm?
 - Company self-concept: What is the firm’s distinctive competence or major
competitive advantage? Description of the firm’s self-concept provides a strong
impression of the firm’s self-image.
- Concern for public image: Is the firm responsive to social, community and
environmental concerns? It will draw attention of public. Thus organization
extracts public image through its mission statement.
- Concern for employees: Are employers considered a valuable asset of the
firm? Mission statements should also emphasize their concern for improvement
of quality of work, life, equal opportunity for all, measures for employee welfare
etc.
- Concern for quality: Is the firm committed to highest quality? The emphasis on
quality has received added importance in many corporate philosophies.

Distinction between Vision and Mission

VISION MISSION
1. A mental image of a possible and 1. Enduring statement of philosophy, a
desirable future state of the creed statement.
organization. 2. The purpose or reason for a firm’s
2. A dream. existence.
3. Broad. 3. More specific than vision.
4. Answers the question “what we want 4. Answers the question “what is our
to become?” business?”

 GOALS

According to Oxford dictionary “goal” is an object of efforts or destination. Goals are

aimed at mission and vision of the organization. Objectives are the basic steps to
achieve goal. And goal is a predetermined objective. Sometimes “objective” and “goal”
are used interchangeably.
Goals are specific and time-based points of measurement. Generally, goals are
determined by the owner or entrepreneur of the business organization. In case of large
scale companies CEO will determine the goals for its firm. Thus goal of the owner will
be the goal of firm.

Importance of Goal Setting

1. Goals will decide the targets of the employees in the organization.

2. Goals are necessary to increase productivity.
3. Goals play a vital role in decision-making - quantitative as well qualitative.
4. Goals will give direction for strategic planning for the better future.
5. Goals perform an integrating function by linking different organizations.
6. Achievement of the organization can be enhanced through setting of goals.
7. Goals and objectives also constitute as a source of legitimacy.
8. Goals can be formed as a base for long-term as well as short-term objectives.
9. Multiple objectives are useful to achieve the sole goal of profit maximization.

 OBJECTIVES

Objectives are defined as the ends which the organization seeks to achieve. Objectives
may be internal or external. Internal objectives are those which define how much is
expected to be achieved with the resources that the organization commands (example:
to raise the average rate of return on investment to 15% per annum). External
objectives are those which define the impact of organization on its environment.

Characteristics of Objectives

Well – stated objectives should be:

- Specific
- Quantifiable
- Measurable
- Clear
- Consistent
- Reasonable
- Challenging
- Contain a deadline for achievement
- Communicated, throughout the organization

Role of Objectives

- Govern the behavior of the employees in the organization.

- Are necessary to reduce conflicts.
- Play a vital role in decision-making.
- Will give direction for strategic planning.
- Perform an integrating function by setting priorities.
- Enhance efficiency of the organization.
- Also constitute as a source for legitimacy.
- Can be formed as a base for long-term as well as short-term goals.
- Are useful to achieve the sole objectives of profit maximization.
The following are important types of objectives:

1. Management Objectives: Managers of the organization will determine some goals

and aims for the organization. CEO is the key-man to decide about management
objectives.
2. Performance Objectives: The companies will decide production targets and
productivity. In general, performance objectives are quantitative in nature.
3. Growth Objectives: Organization always seeks to achieve growth. Hence growth is
one of the most important objectives. Profit and wealth maximization will form part of
objectives.
4. High Result-Orientation Objectives: This objective is linked with growth objective.
Determination for achievement of results leads to growth. Every organization always
seeks to achieve high result; as low performing entities cannot survive in the
competitive world.
5. Procedure-Orientation Objectives: Reduction of complexity in procedures results
in achieving high result. Ultimately it leads to growth and good performance.
6. Social Responsibility: Objectives of social responsibility are expressed in terms of
types of activities, number of days of service, or financial contributions.
7. Customer Service Objectives: These objectives are prepared in terms of types of
activities, number of days of services or financial commitment, etc.
8. Objectives for Development of Human Resources: Every organization should
have a separate human resource department. It should concentrate on improving
skills of manpower. Manpower planning and development is one of the key factors of
preparation of objectives.
9. Objectives of Discipline: Discipline among the employees is also one of the
objectives of the organization. Some organizations declare its policy of discipline
through the rules and regulations.
10. Cost Control Objectives: To achieve more profits, the organization should
concentrate on cost control and cost reduction techniques. Thus, cost control will be
one of the important objectives of the organization.
11. Profitability Objectives: These are expressed in terms of profits, return on
investment, earnings per share, or profit-to-sales ratios.
12. Product: Specification for product will determined by fixing objectives of product. It
is expressed in terms of sales and profitability by product line or product.
13. Markets: To increase sales, to achieve expected market share these objectives will
be prepared.
14. Research and Innovation: Objectives in this category are expressed in terms of
amount of money to be spent.
Types of Objectives to Set

Objectives are needed for each key result area which is important to success. Two
types of key result areas are financial performance and strategic performance.
Objectives are also classified in two categories:

1. Financial objectives
2. Strategic objectives

FINANCIAL OBJECTIVES STRATEGIC OBJECTIVES

 10% increase in annual revenues.
 5% increase in annual profits.
 5% annual increase in earnings per
share.
 5% annual increase in dividends.
 Strong bond and credit ratings.
 Sufficient internal cash-flows.
 Stable earnings during periods of
recession.
 Increased shareholder value.
 Winning an increase in market
share.
 Achieving lower overall costs than
rivals.
 Overtaking key competitors on
product performance.
 Achieving technological leadership.
 Strengthening the company’s brand
name.
 Having stronger distribution network
than rivals.
 Consistently introducing new or
improved products to market.

Setting Objectives

There are two approaches to objective setting:

1. Top – down approach: Company-wide objectives are fixed first, and then
financial and strategic objectives are fixed for business units, divisions, functional
departments and operating units.
2. Bottom – up approach: Objective setting starts at the bottom level of the
organization first, and the company-wide objectives reflect the aggregate of what
has bubbled up from below.

Management by Objectives (MBO)

Another approach to objective - setting is Management by Objectives (MBO). This

concept was popularized by Peter Drucker in 1960s. MBO is a “process whereby the
superior and subordinate managers of an organization jointly identify common goals,
define each individuals’ major areas of responsibility in terms of results expected of
them”. MBO is by far the most ideal way of setting goals and objectives.
The significant features of MBO are:

1. Joint setting of goals.

2. Emphasis on what must be accomplished rather than how it is to be
accomplished.
3. Integration of individual goals with organizational goals.
4. Focus on key result areas.
5. Evaluation and feedback.

Distinction between Goals and Objectives

GOALS OBJECTIVES
1. General 1. Specific
2. Qualitative 2. Quantitative, measurable
3. Broad organization-wide target 3. Narrow targets set by operating divisions
4. Long term results 4. Immediate, short term results

 Plans
Plans indicate the specific actions that will be taken by the organization in order to
achieve the objectives. Plans specify the roles members of the organization will
perform, the resource allocation across different organizational sub-units and
departments, and prioritize and schedule the various activities.
C. SELECTING A STRATEGY

Identifying a Strategy

The purpose of identifying and articulating the current strategy of an organization as the
first step in strategic analysis is threefold:

1. To provide an understanding of how the organization reached its present status

and current level of performance.

2. To provide the first alternative for any set of strategic alternatives.

3. To communicate with other strategists to come to a common understanding of

the situation.

Identification of strategy involves of investigative work and analysis.

An organization which has no explicit strategy is relatively easy to identify. The

probabilities of long-term success are greatly reduced without a consciously developed
strategy.

However, strategy may exist even when it is not formally developed and explicitly
communicated. If the strategy has been developed but no written, it becomes necessary
to look for evidence of strategy rather than for a strategy statement. In this situation, a
formally developed, written strategy makes identification simply a process of locating
the statement of strategy or an individual who can divulge it.

Strategy Analysis and Choice

The first step in evaluating and choosing a strategy is to review the results of the
strategic situation assessment consisting of an analysis of the general, industry, and
internal environments, in terms of factors critical to the success of the business.

George Steiner stated that three types of data are required to perform a situation audit:
identifying threats, strengths, and weaknesses.

1. Past performance of the firm.

2. Data about the current situation, including:
 Analysis of customers and markets.
 Resources of the company.
 Competition.
 Environmental setting.
 Other performance measures or areas of interest.
 3. Forecasts of the future.

The development and evaluation of alternatives should be two separate and distinct
steps. Three basic questions must be asked during strategy evaluation:

1. How effective has the existing strategy been?

2. How effective will that strategy be in the future?
3. What will be the effectiveness of selected alternative strategies (or changes in
the existing strategy) in the future?

The form of strategic analysis and choice varies considerably according to the stage of
development of the firm, and the focus differs at the different firm levels.

The evaluation should take place at the corporate, business, and functional levels, with
close scrutiny of policies and plans at each of these levels.

For multi-industry and multiproduct/product firm, strategic analysis begins at the

corporate level.

Corporate strategy provides guidance for resource allocations among businesses and
also indicates standards for adding new businesses or deleting existing ones.

Alternative business-level strategies must be examined within the context of each

business unit in multi-industry firms.

Functional strategies must be identified to initiate and control daily business activities in
a manner consistent with business strategy.

Selecting a Strategy

In deciding between the remaining alternatives the decision maker should re-examine
all major assumptions on which they based. In the final analysis, the decision may come
down to the risks inherent in the alternatives as opposed to their potential return. For
each major risk, the following questions should be answered:

1. What are the consequences?

2. Will the "worst case" scenario seriously hurt the company, the division, or
finances?

3. What level of risk am I willing to accept?

4. What if I do not accept the risk? Will the competition accept it?

5. How can the risks be reduced?

 D. MODEL OF STRATEGIC MANAGEMENT PROCESS

Strategic management is a set of management decisions and actions that determines

the long-run performance of a corporation. It includes environmental scanning, strategy
formulation, strategy implementation and evaluation and control to achieve the
objectives of an organization. The study of strategic management emphasizes the
monitoring and evaluating of external opportunities and threats in light of a corporation’s
strengths and weaknesses.

What’s the importance behind establishing a strategic management process model?

More importantly, why is strategic management such an important part of a company’s
overall success? Well, for one thing, the strategic management process model lays the
groundwork for strategic planning. It’s the adoption of these strategic plans by
management that sets the stage for a company being able to link its objectives and
goals to companywide resources.

Strategic Management Process

STEP1 Step3 Step4

STEP2
Setting up of Strategic Strategy Strategy evaluation and
Strategy Formulation
Intent Implementation Control

Environmental Activation of
Vision Evaluate
Appraisal Strategy

Designing
Organizational
Mission Structure,Process Monitor
Appraisal
and System

Behavioral
Objective Review
Implementation

Functional
Implementation

Operationalizing
Strategy
Without an all-encompassing strategic plan, many companies simply go day to day,
putting out one fire after another. Management not only needs the tools necessary to
put plans to actions, but must also be given the foundation to take charge of the
company’s future by adopting companywide strategies that reduce costs, grow
business, and improve a company’s bottom line.

Step 1: Setting up of Strategic Intent

- Vision: Vision is the statement that expresses organization’s ultimate long-run

objectives. It is what the firm ultimately like to become. Vision once formulated is for
forever and long lasting for years to come. Vision is closely related with strategic
intent and is a forward thinking process. Ex. - Microsoft- ’A computer software on
every desk and in every home’.

- Mission: It tells who we are and what we do as well as what we’d like to become.
Mission of a business is the fundamental, unique purpose that sets it apart from
other firms of its kind and identifies the scope of its operations in product and market
terms. Ex. - Microsoft- ‘Empower every person and every organization on the planet
to achieve more’.

- Objectives: These are the end results of planned activity that state what is to be
accomplished by when and should be quantified if possible and their achievement
should result in the fulfillment of a corporation’s mission. Objectives state specifically
how the goals shall be achieved. Following are the areas for setting objectives- profit
objective, marketing objective, production objective, etc.

Step 2: Strategy Formulation

It refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the
organizational vision. For choosing most appropriate course of action, appraisal of
organization and environmental is done with the help of SWOT analysis.

- Environmental Appraisal - The environment of any organization is "the aggregate

of all conditions, events and influences that surround and affect it". It is dynamic and
consists of External & Internal Environment. The external environment includes all
the factors outside the organization which provide opportunities or pose threats to
the organization. The internal environment refers to all the factors within an
organization which impart strengths or cause weaknesses of a strategic nature.
- Organizational Appraisal - It is the process of observing an organizational internal
environment to identify the strengths and weaknesses that may influence the
organization's ability to achieve goals. The analysis of corporate capabilities and
 weaknesses becomes a pre-requisite for successful formulation and reformulation of
corporate strategies. This analysis can be done at various levels: functional,
divisional and corporate.

Step 3: Strategy Implementation

Strategy implementation is the action stage of strategic management. It refers to

decisions that are made to install new strategy or reinforce existing strategy.

- Designing Structure, Process & System: Strategy implementation includes the

making of decisions with regard to organizational structure, developing budgets,
programs and procedures in order to accomplish certain activities.

- Functional Implementation: Functional implementation is carried out through

functional plan and policies in five different areas- marketing, finance, and operation,
personnel and Information management.

- Behavioral Implementation: It denotes mobilizing employees and managers to put

and formulate strategies into action and require personal discipline, commitment and
sacrifice. It depends upon manager’s ability to motivate employees.

- Operationalizing Strategy: It includes establishing annual objectives, devising

policies, and allocating resources.

Step 4: Strategy Evaluation & Control

- Strategy evaluation: It is the primary means to know when and why particular
strategies are not working well. It is the process in which corporate activities and
performance results are monitored so that actual performance can be compared with
desired performance. Thus strategic evaluation activities include reviewing external
and internal factors that are the basis for current strategies.

- Strategic control: In this step, organizations Determine what to control i.e., which
objectives the organization hopes to accomplish, set control standards, measure
performance, Compare the actual with the standard, determine the reasons for the
deviations and finally taking corrective actions and review the policies and activities
if needed.
E. STRATEGIC MANAGEMENT AND PLANNING

 PURPOSE

Its primary purpose is to connect three key areas:

1. mission - defining the business' purpose

2. vision - describing what is to be achieved
3. plan - outlining how the ultimate goals is to be achieved

Purpose relates to what the organization strives to achieve in order to achieve these key
areas.

 METHODS USED

Strategic planning relies on a number of methods and tools to define and interpret
information for comparing alternatives. This chapter identifies selected planning
methods according to four purposes:

1. Methods to clarify issues and problems. - All planning teams need creativity and
analytical rigor to define problems and compare options. Several structured techniques
promote both creativity and rigor.

2. Methods to examine spatial and inter-sectoral relationships. - Strategic planning

for forests has to account for cross-cutting functional and spatial relationships. The
methods for this rely on maps and area planning, together with computer simulations
and models in regional economic geography.

3. Methods for social, environmental, and economic analysis. - Your planning team
needs to anticipate the social, environmental, and economic impacts of its proposed
goals and strategies. Several frameworks are available for this.

4. Methods to discuss the future. - Planning is about forecasting the future and
deciding how to prepare for it. Your planning team should practice and learn from
techniques of "futures analysis."

 THE EFFECT OF THE EXTERNAL ENVIRONMENT ON PLANNING

For any business to grow and prosper, managers of the business must be able to
anticipate, recognize and deal with change in the internal and external environment.
Change is a certainty, and for this reason business managers must actively engage in a
process that identifies change and modifies business activity to take best advantage of
change. That process is strategic planning.
The main problem for business managers is to be able to respond early to change in the
external environment, and this depends on how soon any change is identified.

Factor Influence on the Organization

Economic conditions Prevailing economic conditions of the nation will have an

effect on the spending patterns of citizens. Increases in
interest rates and/or a high level of unemployment will
depress consumption of non-essential goods and
services. For example. When people experience financial
hardship, they will spend much less on sport and
recreation, holidays, new cars and luxury goods.

Market (competition) The strength of business competition is a constantly

changing factor in the external business environment. Not
only will competitors come and go, but they will also
change marketing strategies, product lines and prices.
Often such changes are not heralded and business
managers must be alert as to what competitors are doing.

Technology Technological change has been rapid in the last 50 years

and is a factor in the external environment that constantly
exerts pressure on the business or organisation. If
businesses do not adapt sufficiently quickly to
technological change, they risk losing market share. It's
 not just that technological change affects the design of
products, but even the delivery of services can change.

Climate Change Climate change is an insidious threat because the pace

of change may be recognizable only if considered on a
decade-by-decade basis. The effect of climate change
will not fall equally on all nations and all businesses.
Businesses that depend directly on a good supply of
water e.g. agriculture, field sports will be adversely
affected if climate change results in reduced rainfall.
However the flow on effects of drought will eventually
work their way through to all businesses in the effected
community.

Legal Taxation is one of most obvious changes in law

through legislation. Sometimes taxation changes occur
overnight with little warning and sometimes there is
plenty of time for the business to prepare. Other law
changes that commonly affect business include
Workplace Health and Safety, Industrial Relations,
Consumer Protection and Environmental Law,

Media The media is undergoing rapid and significant change.

The main driver of this change is technology and the rise
of the internet. Newspapers once carried many pages of
job adverts but now this business is conducted by online
recruitment companies such as Seek.

Political Like law, changes in government policy can be well

notified and discussed, or without warning. As an
example of how government policy has an effect, is that
many organisations depend on government financial
assistance. When there is a change of government, such
funding assistance can disappear in a short space of
time.

Demographic There is constant change in the make-up of the

population. Some of these changes include an increasing
proportion of elderly citizens, increasing number of two-
income families, the age at which people marry is
 increasing, increasing ethnic diversity, and suburbs which
were once dominated by young families now have few.

 UNDERSTANDING AND MANAGING RISK

Strategic risk arises when a company fails to anticipate the market’s needs in time to
meet them.

Strategic risk management is the process of identifying, quantifying, and mitigating

any risk that affects or is inherent in a company’s business strategy, strategic
objectives, and strategy execution. These risks may include:
 Shifts in consumer demand and preferences
 Legal and regulatory change
 Competitive pressure
 Merger integration
 Technological changes
 Senior management turnover
 Stakeholder pressure

Measuring and Managing Strategic Risk

Strategic risk can be measured with two key metrics:

1. Economic capital is the amount of equity required to cover unexpected losses based
on a predetermined solvency standard. Typically, this standard is derived from the
company’s target debt rating. Economic capital is a common currency with which
any risk can be quantified. Importantly, it applies the same methodology and
assumptions used in determining enterprise value, making it ideal for strategic risk.

2. Risk-adjusted return on capital (RAROC) is the anticipated after-tax return on an

initiative divided by its economic capital. If RAROC exceeds the company’s cost of
capital, the initiative is viable and will add value. If RAROC is less than the cost of
capital, it will destroy value.

Managing strategic risk involves five steps which must be integrated within the strategic
planning and execution process in order to be effective:

1. Define business strategy and objectives. There are several frameworks that
companies commonly use to plan out strategy, from simple SWOT analysis to the
more nuanced and holistic Balanced Scorecard. The one thing that these
 frameworks have in common, however, is their failure to address risk. It is crucial,
then, that companies take additional steps to integrate risk at the planning stage.

2. Establish key performance indicators (KPIs) to measure results. The best KPIs offer
hints as to the levers the company can pull to improve them. Thus, overall sales
makes a poor KPI, while sales per customer lets the company drill down for
answers.

3. Identify risks that can drive variability in performance. These are the unknowns, such
as future customer demand, that will determine results.

4. Establish key risk indicators (KRIs) and tolerance levels for critical risks. Whereas
KPIs measure historical performance, KRIs are forward-looking leading indicators
intended to anticipate potential roadblocks. Tolerance levels serve as triggers for
action.

5. Provide integrated reporting and monitoring. Finally, companies must monitor results
and KRIs on a continuous basis in order to mitigate risks or grasp unexpected
opportunities as they arise.

Strategic risk represents the greatest dangers—and opportunities—your company

faces. By taking steps to manage it at the enterprise level, companies can shape their
future success while minimizing downside exposure.
F. DISTINGUISHING AMONG CORPORATE, STRATEGIC AND FUNCTIONAL
LEVEL STRATEGIES

Three Levels of Strategy

 Corporate level strategy

 Business level strategy
 Functional level strategy

Corporate Level Strategy

Corporate Strategy involves the careful analysis of the selection of businesses the
company can successful compete in. Corporate level strategies affect the entire
organization and are considered delicate in the strategic planning process.

Characteristics of Corporate Strategy

Corporate level strategies are formulated by the top management with inputs from
middle level management and lower level management in the formulation process and
designing of sub strategies. Decisions are complex and affect the entire organization. It
is concerned with the efficient allocation and utilization of scarce resources for the
benefit of the organization. Corporate level strategies are mapped out around the goal
and objectives of an organization. They seek to translate these goals and objectives to
reality. Typical examples of decisions made are decisions on products and markets.

Types of Corporate Level Strategy

The three main types of corporate strategies are Growth strategies, Stability strategies
and Retrenchment.

- Growth Strategy. Like the name implies, corporate strategies are those corporate
level strategies designed to achieve growth in key metrics such as sales / revenue,
total assets, profits etc. A growth strategy could be implemented by expanding
operations both globally and locally; this is a growth strategy based on internal
factors which can be achieved through internal economies of scale. An organization
can also grow externally through mergers, acquisitions and strategic alliances. The
two basic growth strategies are concentration strategies and diversification
strategies.
1. Concentration strategy: This is mostly utilized for company’s producing
product lines with real growth potentials. The company concentrates more
resources on the product line to increase its participation in the value chain of the
product. The two main types of concentration strategies are vertical growth
strategy and horizontal growth strategy.
 a. Vertical growth strategy: As mentioned above, by utilizing this strategy, the
company participates in the value chain of the product by either taking up the
job of the supplier or distributor. If the company assumes the function or the
role previously taken up by a supplier, we call it backward integration, while it
is called forward integration if a company assumes the function previously
provided by a distributor.
b. Horizontal growth strategy: Horizontal growth is achieved by expanding
operations into other geographical locations or by expanding the range of
products or services offered in the existing market. Horizontal growth results
into horizontal integration which can be defined as the degree in which a
company increases production of goods or services at the same point on an
industry’s value chain.
2. Diversification Strategy: A company is diversified when it is in two or more lines
of business operating in distinct and diverse market environments. Two basic
types of diversification strategies are concentric and conglomerate.
a. Concentric Diversification: This is also called related diversification. It
involves the diversification of a company into a related industry. This strategy
is particularly useful to companies in leadership position as the firm attempts
to secure strategic fit in a new industry where the firm’s product knowledge,
manufacturing capability and marketing skills it used so effectively in the
original industry can be used just as well in the new industry it is diversifying
into.
b. Conglomerate Diversification: This is also called unrelated diversification; it
involves the diversification of a company into an industry unrelated to its
current industry. This type of diversification strategy is often utilized by
companies in saturated industries believed to be unattractive, and without the
knowledge or skill it could transfer to related products or services in other
industries.

- Stability Strategy. Stability strategies are mostly utilized by successful

organizations operating in a reasonably predictable environment. It involves
maintaining the current strategy that brought it success with little or no change.
There are three basic types of stability strategies, they are:
a. No change Strategy: When a company adopts this strategy, it indicates that the
company is very much happy with the current operations, and would like to
continue with the present strategy. This strategy is utilized by companies who are
“comfortable” with their competitive position in its industry, and sees little or no
growth opportunities within the said industry.
b. Profit Strategy: In using this strategy, the company tries to sustain its profitability
through artificial means which may include aggressive cost cutting and raising
 sales prices, selling of investments or assets, and removing non-core
businesses. The profit strategy is useful in two instances:
1. To help a company through tough times or temporary difficulty; and
2. To artificially boost the value of a company in the case of an Initial Public
Offering (IPO)
c. Pause/ Proceed with Caution Strategy: This strategy is used to test the waters
before continuing with a full-fledged strategy. It could be an intermediate strategy
before proceeding with a growth strategy or retrenchment strategy. The pause or
proceed with caution strategy is seen as a temporary strategy to be used until the
environment becomes more hospitable or consolidate resources after prolonged
rapid growth.
- Retrenchment Strategies. Retrenchment strategies are pursued when a company’s
product lines are performing poorly as a result of finding itself in a weak competitive
position or a general decline in industry or markets. The strategy seeks to improve
the performance of the company by eliminating the weakness pulling the company
back. Examples of retrenchment strategies are:
a. Turnaround Strategy: This strategy is adopted for the purpose of reversing the
process of decline. This strategy emphasizes operational efficiency and is most
appropriate at the beginning of the decline rather than the critical stage of the
decline.
b. Divestment Strategy: Divestment also known as divestiture is the selling off of
assets for the different goals a company seeks to attain. This strategy involves
the cutting off of loss making units, divisions or Strategic Business Units (“SBU”).
c. Liquidation Strategy: Liquidation strategy is considered a last resort strategy, it
is adopted by company’s when all their efforts to bringing the company to
profitability is futile. The company chooses to abandon all activities totally, sell off
its assets and see to the final close and winding up of the business.

Understanding Porter's Five Forces

Porter's Five Forces is a business analysis model that helps to explain why different
industries are able to sustain different levels of profitability. The model was published in
Michael E. Porter's book, "Competitive Strategy: Techniques for Analyzing
Industries and Competitors" in 1980. The model is widely used to analyze the
industry structure of a company as well as its corporate strategy. Porter identified five
undeniable forces that play a part in shaping every market and industry in the world.
The forces are frequently used to measure competition intensity, attractiveness, and
profitability of an industry or market. These forces are:

1. Competition in the industry

2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products

Competition in the Industry

This force refers to the number of competitors and their ability to undercut a company.
The larger the number of competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company. Suppliers and buyers seek out a
company's competition if they are able to offer a better deal or lower prices. Conversely,
when competitive rivalry is low, a company has greater power to charge higher prices
and set the terms of deals to achieve higher sales and profits.

Potential of New Entrants into an Industry

A company's power is also affected by the force of new entrants into its market. The
less time and money it costs for a competitor to enter a company's market and be an
effective competitor, the more a company's position may be significantly weakened. An
industry with strong barriers to entry is an attractive feature for companies that allows
them to charge higher prices and negotiate better terms.

Power of Suppliers

This force addresses how easily suppliers can drive up the cost of inputs. It is affected
by the number of suppliers of key inputs of a good or service, how unique these inputs
are, and how much it would cost a company to switch from one supplier to another. The
fewer the number of suppliers, and the more a company depends upon a supplier, the
more power a supplier holds to drive up input costs and push for advantage in trade. On
the other hand, when there are many suppliers or low switching costs between rival
suppliers a company can keep input costs lower increasing profits.

Power of Customers

This specifically deals with the ability that customers have to drive prices down. It is
affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new customers or markets
for its output. A smaller and more powerful client base, means that each customer has
more power to negotiate for lower prices and better deals. A company that has many,
smaller, independent customers will have an easier time charging higher prices to
increase profitability.
Threat of Substitutes

Substitute goods or services that can be used in place of a company's products or

services pose a threat. Companies that produce goods or services for which there are
no close substitutes will have more power to increase prices and lock in favorable
terms. When close substitutes are available, customers will have the option to forgo
buying a company's product, and a company's power can be weakened.

Business Level Strategies

There are four generic strategies that are used to help organizations establish a
competitive advantage over industry rivals. Firms may also choose to compete across a
broad market or a focused market.

- Cost Leadership – Organizations compete for a wide customer based on price.

Price is based on internal efficiency in order to have a margin that will sustain above
average returns and cost to the customer so that customers will purchase your
product/service. Works well when product/service is standardized can have generic
goods that are acceptable to many customers, and can offer the lowest price.
Continuous efforts to lower costs relative to competitors are necessary in order to
successfully be a cost leader. This can include:
1. Building state of art efficient facilities (may make it costly for competition to
imitate)
2. Maintain tight control over production and overhead costs
3. Minimize cost of sales, R&D, and service.

Porter's 5 Forces Model under the Cost Leadership

A cost leadership strategy may help to remain profitable even with: rivalry, new entrants,
suppliers' power, substitute products, and buyers' power.
a. Rivalry – Competitors are likely to avoid a price war, since the low cost firm will
continue to earn profits after competitors compete away their profits (Airlines).
b. Customers – Powerful customers that force firms to produce goods/service at
lower profits may exit the market rather than earn below average profits leaving
the low cost organization in a monopoly positions. Buyers then loose much of
their buying power.
c. Suppliers – Cost leaders are able to absorb greater price increases before it
must raise price to customers.
d. Entrants – Low cost leaders create barriers to market entry through its
continuous focus on efficiency and reducing costs.
e. Substitutes – Low cost leaders are more likely to lower costs to entice customers
to stay with their product, invest to develop substitutes, purchase patents.
How to Obtain a Cost Advantage?

a. Determine and Control Cost

b. Reconfigure the Value Chain as Needed

Risks
a. Technology
b. Imitation
c. Tunnel Vision

- Differentiation - Value is provided to customers through unique features and

characteristics of an organization's products rather than by the lowest price. This is
done through high quality, features, high customer service, rapid product innovation,
advanced technological features, image management, etc. (Some companies that
follow this strategy: Rolex, Intel, Ralph Lauren).Create Value by:
a. Lowering Buyers' Costs – Higher quality means less breakdowns, quicker
response to problems.
b. Raising Buyers' Performance – Buyer may improve performance, have higher
level of enjoyment.
c. Sustainability – Creating barriers by perceptions of uniqueness and reputation,
creating high switching costs through differentiation and uniqueness.

Risks of Using a Differentiation Strategy

a. Uniqueness
b. Imitation
c. Loss of Value

Porter's Five Forces Model under Differentiations

Effective differentiators can remain profitable even when the five forces appear
unattractive.

a. Rivalry – Brand loyalty means that customers will be less sensitive to price
increases, as long as the firm can satisfy the needs of its customers.
b. Suppliers – Because differentiators charge a premium price they can more afford
to absorb higher costs and customers are willing to pay extra too.
c. Entrants – Loyalty provides a difficult barrier to overcome.
d. Substitutes – Once again brand loyalty helps combat substitute products.

- Focused Low Cost- Organizations not only compete on price, but also select a
small segment of the market to provide goods and services to.
- Focused Differentiation - Organizations not only compete based on differentiation,
but also select a small segment of the market to provide goods and services.
Focused Strategies - Strategies that seek to serve the needs of a particular
customer segment (e.g., federal gov't).

Companies that use focused strategies may be able serve the smaller segment (e.g.
business travelers) better than competitors who have a wider base of customers. This is
especially true when special needs make it difficult for industry-wide competitors to
serve the needs of this group of customers. By serving a segment that was previously
poorly segmented an organization has unique capability to serve niche.

Risks of Using Focused Strategies:

a. Maybe out focused by competitors (even smaller segment)

b. Segment may become of interest to broad market firm(s)

- Using an Integrated Low-Cost/Differentiation Strategy- This new strategy may

become more popular as global competition increases. Firms that use this strategy
may see improvement in their ability to:
a. Adaptability to environmental changes.
b. Learn new skills and technologies
c. More effectively leverage core competencies across business units and products
lines which should enable the firm to produce produces with differentiated
features at lower costs.

Functional Level Strategy

Functional Level Strategy can be defined as the day to day strategy which is formulated
to assist in the execution of corporate and business level strategies. These strategies
are framed as per the guidelines given by the top level management.

Functional Level Strategy is concerned with operational level decision making,

called tactical decisions, for various functional areas such as production, marketing,
research and development, finance, personnel and so forth. As these decisions are
taken within the framework of business strategy, strategists provide proper direction and
suggestions to the functional level managers relating to the plans and policies to be
opted by the business, for successful implementation.

Role of Functional Strategy

a. It assists in the overall business strategy, by providing information concerning the

management of business activities.
 b. It explains the way in which functional managers should work, so as to achieve
better results.

Functional Strategy states what is to be done, how is to be done and when is to be done
are the functional level, which ultimately acts as a guide to the functional staff. And to do
so, strategies are to be divided into achievable plans and policies which work in tandem
with each other. Hence, the functional managers can implement the strategy.

Functional Areas of Business

There are several functional areas of business which require strategic decision making,
discussed as under:

- Marketing Strategy: Marketing involves all the activities concerned with the
identification of customer needs and making efforts to satisfy those needs with the
product and services they require, in return for consideration. The most important
part of marketing strategy is the marketing mix, which covers all the steps a firm can
take to increase the demand for its product. It includes product, price, place,
promotion, people, process and physical evidence. For implementing a marketing
strategy, first of all, the company’s situation is analyzed thoroughly by SWOT
analysis. It has three main elements, i.e. planning, implementation and control.
There are a number of strategic marketing techniques, such as social marketing,
augmented marketing, direct marketing, person marketing, place marketing,
relationship marketing, Synchro marketing, concentrated marketing, service
marketing, differential marketing and demarketing.

- Financial Strategy: All the areas of financial management, i.e. planning, acquiring,
utilizing and controlling the financial resources of the company are covered under
financial strategy. This includes raising capital, creating budgets, sources and
application of funds, investments to be made, assets to be acquired, working capital
management, dividend payment, calculating net worth of the business and so forth.

- Human Resource Strategy: Human resource strategy covers how an organization

works for the development of employees and provides them with the opportunities
and working conditions so that they will contribute to the organization as well. This
also means to select the best employee for performing a particular task or job. It
strategizes all the HR activities like recruitment, development, motivation, retention
of employees, and industrial relations.
- Production Strategy: A firm’s production strategy focuses on the overall
manufacturing system, operational planning and control, logistics and supply chain
management. The primary objective of production strategy is to enhance the quality,
increase the quantity and reduce the overall cost of production.

- Research and Development Strategy: The research and development strategy

focuses on innovating and developing new products and improving the old one, so
as to implement an effective strategy and lead the market. Product development,
concentric diversification and market penetration are such business strategies which
require the introduction of new products and significant changes in the old one.

For implementing strategies, there are three Research and Development approaches:

1. To be the first company to market a new technological product.

2. To be an innovative follower of a successful product.
3. To be a low-cost producer of products.

Functional level strategies focus on appointing specialists and combining activities

within the functional area.
G. FORECASTING THE FUTURE FOR NATIONS, INDUSTRIES, ORGANIZATIONS
AND THE WORKFORCE FOR CHANGES, DEVELOPMENTS AND OPPORTUNITIES

Strategic Forecasting

- Expecting future strategies for the business. This estimate is made considering
various factors like controllable and non-controllable and present and anticipated
market condition.
- Accurate forecasting is essential for a firm to enable it to produce the required
quantities at the right time and arrange well in advance for the various factors of
production like materials, money, men, management, machinery, etc.

Factors involved in strategic forecasting

1. Time factor: forecasting may be done for short-term or long-term. Short-term

forecasting is generally taken for one year while long-term forecasting covers a
period of 5year, 10year or 20year period.

2. Level factor: strategic forecasting may be undertaken at three different levels.

a. Macro level - it is concerned with business condition over the whole economy.
b. Industry level - prepared by different industries.
c. Firm level - firm level forecasting is the most important from the managerial
view point.

3. General or specific purpose factor: the firm may find either general or specific
forecasting or both useful according to its requirement.

4. Product: forecasting varies according to the type of product like new product or
existing product or well-established product

5. Nature of the product: goods can be classified into (i) consumer goods and (ii)
product goods. Business for a product will be mainly dependent on nature of the
product. Forecasting methods for producer goods and consumer goods will be
different accordingly.

6. Competition: while forecasting, market situation and product position in a particular

market should be analyzed.

7. Consumer behavior: what people think about the future, their own personal
prospect and about products and brands are vital factors for firms and industries.
Advantages

1. Analyzing business: Business analysis is the first and foremost application of

strategic forecasting. Strategic forecasting will consider all factors influencing
business for the product, to estimate future business for the product.

2. Estimation of supply: By making strategic forecasting of a business, one can

understand the needs of business. One can estimates the require raw materials,
finished goods, etc. by identifying the suppliers who can supply quality products at
competitive price.

3. Capital outlay: Capital outlay is to ascertain the investment requirements for the
organization. Strategic forecasting includes the responsibility of determining capital
requirements for business.

4. Market conditions: Forecasting will be useful to examine the market condition for
pricing decision

5. Price of a product: Cost-volume-profit analysis is an important tool to analyze cost

to determine target profit for the organization. The firm can be able to decide
appropriate price for the product on the basis of forecasting.

6. Advertising policy: Forecasting helps the management and it has to act as adviser
to the management. It can advise about advertising policy, as it is necessary for
product promotion.

7. Market segmentation: The strategist can be an adviser to the marketing

department. He can take active part in decisions relating to marketing issues like
market segmentation, product mix, product line and determination of decisions like
product addition, deletion- can also be taken with the help of business estimator.

8. Feasibility report: The reports of forecasting help in the preparation of feasibility

reports. Organizations can take important decision by studying these reports.

9. Helping in profit policy making: The reports of forecasting help in making profit
policies of the organization. As stated earlier CVP analysis is a useful tool in
determining profit policy.

10. Production scheduling: Scheduling is fixation of time boundaries. Thus,

production budgets and time-frame for production will be determined on the basis of
strategic forecasting.
11. Cost reduction: As the production is predetermined on the basis of strategic
forecasting, there will be control over the cost of production. Hence, wastage can be
avoided.

12. Inventory control: Inventory or stock of materials can also be planned according to
production planning and control (PPC) methods. It helps in under- or over-inventory
levels.

Useful forecasting techniques:

Various techniques are used to forecast future situations but they do not tell the future,
they merely state what can be, not what will be.

1. Extrapolation

- The most widely used form of forecasting; over 70% use this technique either
occasionally or frequently.
- Is the extension of present trends into the future?
- Predict future data by relying on historical data, such estimating the size of a
population o few years from now on the basis of current population size and its rate
of growth,
- The basic problem is that a historical trend is based on the series of the patterns or
relationships among so many different variables that a change in any one can
severely alter the direction of the future trend. As a rule of thumb, the further back in
the past you can find relevant data supporting the trends, the more confidence you
can have in the prediction.

2. Brainstorming

- Is non-quantitative approach that requires simply the presence of people of some

knowledge of the situation to be predicted?
- The basic ground rule is to propose ideas without first mentally screening them.
- No criticism is allowed and wild ideas are encouraged in brainstorming. Ideas
should build in the previous ideas until consensus is reached.
- Brainstorming is a good technique to use with the operating managers who have
more faith in “gut feel” than in more quantitative number-crunching techniques.

3. Expert Opinion

- Is a non-quantitative technique in which expert in a particular area attempts to

forecast likely development.
- This type of forecast is based on the ability of a knowledgeable person(s) to
construct probable future developments based on the interactions of the key
variables.
- Delphi Technique: One application develops by the rand corporation during 1950-
1960s by Olaf Helmer, Norman Dalkey and Nicholas Rescher. In which separated
experts independently assess probability of the specific events. These assessments
is combined and sent back to the expert for fine-tuning until agreement is reached.
These assessments are most useful if they are shaped in several possible scenarios
that allow decision makers to more fully understand their implications.

4. Statistical Modeling

- Is a quantitative technique that attempts to discover casual or at least explanatory

factors that link two or more time series together? Examples of statistical modeling
are regression analysis and other econometric method.

5. Prediction Market

- Is a recent forecasting technique enabled by easy access to the internet? Prediction

markets are small-scale electronic markets, frequently open to any employee, that
tie payoffs to measurable future events, such as sales data for a computer
workstation, the number of bugs in an application, or a product usage pattern.

6. Scenario Writing

- Often called scenario planning. Is the most widely used forecasting technique after
extrapolation?
- Originated by Royal Dutch Shell, scenarios are focused descriptions of different
likely futures presented in a narrative fashion. This technique has been successfully
used by 3m, Levi-Strauss, General Electric, United Distillers, Electrolux, British
airways and pacific gas and electricity, among others.

7. Other forecasting techniques, such as gross impact analysis (CIA) and trend
impact analysis (TIA) have not established themselves successfully as regularly
employed tools.
TRUE OR FALSE

1. Strategic management is a set of managerial decisions and actions that determines

the long-run performance of a corporation. It includes environmental scanning,
strategy formulation, strategy implementation, and evaluation and control.
2. Strategic management is a continuous process that appraises the business and
industries in which the organization is involved; appraises its competitors; and fixes
goals to meet the entire present and future competitor’s and then reassesses each
strategy.
3. Mission statements are defined as the ends which the organization seeks to
achieve.
4. A vision is the purpose or reason for the organization’s existence.
5. A good mission statement should be long, perplexing and easy to understand.
6. One of the purposes on identifying and articulating the current strategy is to provide
an understanding of how the organization reached its present status and current
level of performance.
7. George Steiner stated that three types of data are required to perform a situation
audit, such as identifying opportunities, strengths, and weaknesses.
8. Environmental Appraisal is the process of observing an organizational internal
environment to identify the strengths and weaknesses that may influence the
organization's ability to achieve goals.
9. Organizational Appraisal is the environment of any organization is "the aggregate of
all conditions, events and influences that surround and affect it". It is dynamic and
consists of External & Internal Environment.
10. Change is a certainty, and for this reason business managers must actively engage
in a process that identifies change and modifies business activity to take best
advantage of change.
11. The strength of business competition is a constantly changing factor in the external
business environment.
12. Strategic forecasting gives a reliable information and estimation of future business.
13. Forecasting methods for producer goods are same as the producer goods
forecasting methods.
14. Corporate level strategies are formulated by the top management with outputs from
middle level management and lower level management in the formulation process
and designing of sub strategies.
15. Porter's Five Forces is a model that was published in Michael E. Porter's book,
"Competitive Strategy: Techniques for Analyzing Industries and Competitors" in
1980.
MULTIPLE QUESTIONS

1. Strategic management helps:

a. To define organization’s objectives and directions
b. To deploy the firm’s resources more pragmatically
c. Keeps all levels of management informed about changes in environment
d. Maintain records of one financial year
e. All of the above

2. External Environment consists of variables:

a. Strength and Weaknesses
b. Strength and Opportunities
c. Strength and Threats
d. Opportunities and Threats
e. Opportunities and Weaknesses

3. Which is NOT a characteristic of a mission statement?

a. Inspiring
b. Relevant
c. Unique
d. Basis for Guidance
e. Specific

4. Which is/are NOT component/s of a mission statement?

a. Basic Product or Service
b. Primary Markets
c. Secondary Technology
d. Customers
e. Both b and c

5. There is three basic questions must be asked during strategy evaluation, which is
NOT?
a. How effective has the existing strategy been?
b. How effective will that strategy be in the future?
c. What will be the effectiveness of selected alternative strategies (or changes in
the existing strategy) in the future?
d. What are the consequences?
e. All of the above
6. It refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the
organizational vision.

a. Strategic Analysis of the Organization

b. Strategy Formulation
c. Strategy Implementation
d. Strategic Evaluation and Control
e. Strategic Management Process

7. It is the action stage of strategic management. It refers to decisions that are made to
install new strategy or reinforce existing strategy
a. Strategic Analysis of the Organization
b. Strategy Formulation
c. Strategy Implementation
d. Strategic Evaluation and Control
e. Strategic Management Process

8. Which of the following is NOT an external environment factor in strategic planning?

a. Economy
b. Technology
c. Legal
d. Management
e. Climate

9. In doing strategic forecasting there’s factors should be considered, which of the

following is should NOT be considered.
a. Nature of the product
b. General or specific purpose factor
c. Consumer behavior
d. Policy
e. All of the above

10. All are functional areas of business EXCEPT:

a. Financial Strategy
b. Managerial Strategy
c. Production Strategy
d. Human Resource Strategy
e. Marketing Strategy
TRUE OR FALSE

1. True
2. True
3. False (Objectives not mission statements)
4. False (Mission statement not vision)
5. False (Short, clear not long, perplexing)
6. True
7. False (threats not opportunities)
8. False (Organizational Appraisal not Environmental Appraisal)
9. False (Environmental Appraisal not Organizational Appraisal)
10. True
11. True
12. True
13. False (different not same)
14. False (Inputs not outputs)
15. True

MULTIPLE QUESTIONS

1. C
2. D
3. E
4. C
5. D
6. B
7. C
8. D
9. D
10. B
 References:

Business Policy and Strategy, An Action Guide, 6th Edition, R. Murdick, R. Carl Moor, H.
Babson, W. Tomlinson, 2000, CRC Press Boca Raton, Florida

Business Policy and Strategic Management, G.V. Satya Sekhar, 2010, I.K. International
Publishing House Pvt. Ltd.

Business Policy and Strategic Management, Concepts and Applications, Revised 2 nd

Edition, V. Gupta, K. Gollakota, R. Srinivasan, 2009, Asoke K. Ghosh, PHI Learning
Private Limited

Business Policy and Strategic Management, 2nd Edition, A. Kazmi, 2011, Tata McGraw-
Hill Publishing Company Limited, New Delhi

Business Policy and Strategy Concepts and Readings, 4th Edition, D. McCarhy, R.
Minichiello, J. Curran, 2004, A.I.T.B.S. Publishers