Business Policy Strategy

Business Unit Strategy

• The Business Unit, sometimes called a “Strategic Business Unit” is either a company or division of a company that focuses on a single product offering or market segment.

• By focusing on the Business Unit, we can isolate the effects of management decisions – policies and strategies – on the profitability of the single line of business.

• Example: School Bus Company

Corporate Strategy

• A Corporation is a collection of multiple Business Units that act as a single entity.

• Once a company begins to diversify away from a single line of business, it becomes necessary for management to consider strategy of the whole corporation, and how to coordinate activities among the business units to serve the purpose of the overall corporation.

• Example: What other businesses might a School Bus company expand into naturally?

Strategy

Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

Strategic Competitivness

When a firm successfully formulates and implements a value-creating strategy

Competitive Advantage

• When a firm implements a strategy that creates superior value for customers AND that its competitors are unable to duplicate

  • KEY POINT: Companies will typically NOT be able to maintain their competitive advantage indefinitely!

Above Average Returns

Returns in excess of what an investor expects to earn from other investments with a similar amount of risk

Risk

An investor’s uncertainty about economic gains or losses that will result from a particular investment

Strategic Management Process

Full set of commitments, decisions, and actions that can lead a firm to achieve strategic competitiveness and earn above-average returns

Industrial Organization Model

The Industrial Organization (I/O) Model views the external environment as the primary determinant of a firm’s strategic actions.

Resource-Based Model of Above-Average Returns

• The Resource-Based Model views the internal capabilities and unique resources of an organization as the primary determinant of a firm’s strategy, and hence returns.

• Capability: an ability to perform a task in an integrative manner toward the fulfillment of a firm’s mission.

• This Model views a company as a collection of its capabilities.

• Core Competency: Resources and Capabilities that serve as a source of competitive advantage for a firm over its rivals.

Vision and Mission

• According to the Strategic Management Process, once you perform your External and Internal Analysis, you are ready to form your Vision and Mission.

• A firm’s Vision is an idea of what the firm wants to be and what it wants to achieve

• A firm’s Mission is the current business in which the firm intends on competing and the customers it intends to serve.

Stakeholders

Classification of Stakeholders

Capital Market Stakeholders

• Capital Market Stakeholders include the following:

  • Equity Shareholders

  • Debt holders (Creditors)

• Large Equity Shareholders have a strong influence on the strategy of the firm.

• Debt Holders are critical to appease due to their ability to put a firm into bankruptcy for default.

Product Market Stakeholders

Product Market Stakeholders include the following:

• Customers – Demand reliable products at the lowest possible prices

• Suppliers – Desire loyal customers who will pay the highest prices for the goods and services they can provide

• Host Communities – national, state, and local governments

• Unions – Demand secure jobs and desirable working conditions for the workers they represent

Organizational Stakeholders

• Organizational Stakeholders consist of all the employees of the firm.

• Organizational Stakeholders are directly involved in the process of formulating and implementing the vision, mission, and strategy of the firm.

• These parties also are the ones most immediately affected by the firm’s change in strategy.

Effective Strategy Requirements

• Strategic Leaders will use the strategic management process to select strategies that align a firm with its vision and fulfill its mission.

  • A profit pool consists of the total profits earned in an industry at all points along the value chain.

  • By mapping an industry’s profit pool, a strategic leader can anticipate possible outcomes of different decisions and focus on overall profitability.

• Organizational culture is the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business.