ALLAMA IQBALOPENUNIVERSITY, ISLAMABAD

Course: (8505) BUSINESS POLICY AND STRATEGY

ASSIGNMENT No. 1

Q. 1 What aspect of strategy formulation do you think requires the most time? Why? (20)
Ans:
"Strategy formulation includes developing a vision and mission, identifying an organization's external opportunities
and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating
alternative strategies, and choosing particular strategies to pursue. Strategy formulation issues include
deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to
expand operations or diversify, whether to enter international markets, whether to merge or form a joint
venture, and how to avoid a hostile takeover. Strategy implementation often is called the action stage of
strategic management. Implementing strategy means mobilizing employees and managers to put formulated
strategies into action. Often considered to be the most difficult stage in strategic management, strategy
implementation requires personal discipline, commitment, and sacrifice."
Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and
allocate resources so that formulated strategies can be executed. Often considered to be the most difficult
state in strategic management, strategy implementation requires personal discipline, commitment, and
sacrifice. Successful strategy implementation hinges upon managers' ability to motivate employees, which is
more an art than a science."
"The strategic-management process can be described as an objective, logical, systematic approach for making
major decisions in an organization. Yet strategic management is not a pure science that lends itself to a nice,
neat, one-two-three approach. Based on past experiences, judgment, and feelings, most people recognize
that intuition is essential to making good strategic decisions. Intuition is particularly useful for making
decisions in situations of great uncertainty or little precedent. Analytical thinking and intuitive thinking
complement each other.
"Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission.
Objectives are essential for organizational success because they state direction; aid in evaluation; create
synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing,
motivating, and controlling activities. Strategies are the means by which long-term objectives will be
achieved. Business strategies may include geographic expansion, diversification, acquisition, product
development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Policies are the
means by which annual objectives will be achieved. Policies include guidelines, rules, and procedures
established to support efforts to achieve stated objectives. Policies are guides to decision making and address
repetitive or recurring situations."

Q. 2 Why do you think organizations that have a comprehensive mission tend to be high performers? Does
having a comprehensive mission cause high performance? (20)
Ans:
Having a comprehensive mission statement does not guarantee or cause high performance. However, a
comprehensive mission statement can contribute significantly to high performance. As described in the
chapter, a comprehensive mission statement provides numerous benefits that usually translate into high
performance.
WHAT IS OUR BUSINESS?

A. Mission Statements

Drucker says asking the question, “What is our business?” is synonymous with asking the question, “What is our
mission?”
 An enduring statement of purpose that distinguishes one organization from other similar enterprises, the
mission statement is a declaration of an organization’s “reason for being.”

Sometimes called a creed statement, a statement of purpose, a statement of philosophy, a statement of

beliefs, a statement of business principles, or a statement “defining our business,” a mission statement reveals
what an organization wants to be and whom it wants to serve.

See Figure 2-1 – the comprehensive strategic management model. It shows developing mission and vision as
the first step in strategic management.

B. Vision versus Mission

1. Many organizations develop both a mission statement and a vision statement. Whereas the mission
statement answers the question, “What is our business?” the vision statement answers the question,
“What do we want to become?”

2. Several examples are given in Table 2-1 in the textbook.

C. The Process of Developing a Vision and Mission Statement

1. As indicated in the strategic-management model, a clear mission statement is needed before alternative
strategies can be formulated and implemented.

2. It is important to involve as many managers as possible in the process of developing a mission

statement, because through involvement, people become committed to an organization.

3. A widely used approach to developing a mission statement is to

a. Select several articles about mission statements and ask all managers to read these as background
information.
b. Ask managers to prepare a mission statement for the organization.
c. A facilitator, or committee of top managers, should then merge these statements into a single
document and distribute this draft to all managers.
d. A request for modifications, additions, and deletions is needed next along with a meeting to revise the
document.

VTN (Visit the Net): The Web site www.csuchico.edu/mgmt/strategy/module1/sld009.htm gives questions that
help to develop mission and vision statements.

Teaching Tip: An excellent book on mission statements is entitled The Mission Statement Book: 301 Corporate
Mission Statements from America’s Top Companies. The book is written by Jeffrey Abrahams and is an excellent
resource for individuals interested in knowing more about the purpose and value of corporate mission statements.

III. IMPORTANCE OF VISION AND MISSION STATEMENTS

A. The Importance of Mission Statements Is Well Documented

Rarick and Vitton found that firms with a formalized mission statement have twice the average return on
shareholders’ equity than those firms without a formalized mission statement. Bart and Baetz found a
positive relationship between mission statements and organizational performance. Business Week reports
 that firms using mission statement have a 30 percent higher return on financial measures than those
without such statements.

B. Reasons for Developing a Written Mission Statement

1. To ensure unanimity of purpose within the organization

2. To provide a basis, or standard, for allocating organizational resources
3. To establish a general tone or organizational climate
4. To serve as a focal point for individuals to identify with the organization’s purpose and direction, and
to deter those who cannot from participating further in the organization’s activities
5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to
responsible elements within the organization
6. To specify organizational purposes and the translation of these purposes into objectives in such a
way that cost, time, and performance parameters can be assessed and controlled

C. A Resolution of Divergent Views

1. Developing a comprehensive mission statement is important because divergent views among

managers can be revealed and resolved through this process.

2. Considerable disagreement among an organization’s strategists over vision and mission can cause
trouble if not resolved.

3. An organization that fails to develop a vision statement as well as a comprehensive and inspiring
mission statement loses the opportunity to present itself favorably to existing and potential
stakeholders.

Natural Environment Perspective: Is Your Firm Environmentally Proactive? This box describes the differences
between proactive and reactive environmental policy and gives the reasons for having a proactive policy.

IV. CHARACTERISTICS OF A MISSION STATEMENT

A. A Declaration of Attitude

1. A mission statement is a declaration of attitude and outlook more than a statement of specific details. It
is usually broad in scope for at least two reasons:

a. First, a good mission statement allows for the generation and consideration of a range of feasible
alternative objectives and strategies without unduly stifling management creativity.

b. Second, a mission statement needs to be broad to effectively reconcile differences among and appeal to
an organization’s diverse stakeholders, the individuals and groups of persons who have a special stake or
claim on the company.

2. An effective mission statement arouses positive feelings and emotions about an organization; it is
inspiring in the sense that it motivates readers to action.

3. It should be short – less than 200 words.

B. A Customer Orientation
 1. A good mission statement reflects the anticipation of customers. Rather than developing a product
and then trying to find a market, the operating philosophy of organizations should be to identify
customers’ needs and then to provide a product or service to fulfill those needs.

2. According to Vern McGinnis, mission statements should 1) define what the organization is and what
it aspires to be, 2) be limited enough to exclude some ventures and broad enough to allow for
creative growth, 3) distinguish a given organization from all others, 4) serve as a framework for
evaluating both current and prospective activities, and 5) be stated in terms sufficiently clear to be
widely understood throughout the organization.

E-Commerce Perspective: Business Over the Internet Skyrocketing Globally. This box describes the growth of e-
commerce. Internet-based companies dominate several industries. For instance, eBay is now the largest used car
dealer and Expedia is the largest U.S. travel agency. A list of the annual growth rate in consumer purchases over
the Internet by country is provided.

C. A Declaration of Social Policy

1. The words social policy embrace managerial philosophy and thinking at the highest levels of an
organization. For this reason, social policy affects the development of a business mission statement.

2. Despite differences in approaches, most American companies try to assure outsiders that they
conduct business in a socially responsible way. The mission statement is an effective instrument for
conveying this message.

Global Perspective: Social Policies on Retirement, Japan versus the World. This box highlights the challenge that
many countries face as their population ages. Some countries like Germany encourage immigration to bolster their
workforces, but Japan has offered incentives for its elderly to work until a later age.

Teaching Tip: Your students may find it interesting to know that not only corporations find mission statement
useful. Steven Covey, the author of the highly successful book The Seven Habits of Highly Successful People, has
written two books that explain how individuals and families can use mission statements to help them determine
who they are and what they want to accomplish. The first book, How to Develop and Use a Personal Mission
Statement, explains why individuals should write mission statements to provide a sense of direction and purpose
for their lives. The second book, How to Develop a Family Mission Statement, applies the same principles in a
family concept. Laurie Beth Jones advances a similar set of ideas in her popular book The Path: Creating Your
Mission Statement for Work and for Life.

V. COMPONENTS OF A MISSION STATEMENT

A. Components and Questions That a Mission Statement Should Answer

1. Customers: Who are the firm’s customers?

2. Products or services: What are the firm’s major products?
3. Markets: Geographically, where does the firm compete?
4. Technology: Is the firm technologically current?
5. Concern for survival, growth, and profitability: Is the firm committed to growth and financial
soundness?
6. Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
7. Self-concept: What is the firm’s distinctive competence or major competitive advantage?
8. Concern for public image: Is the firm responsive to social, community, and environmental concerns?
9. Concern for employees: Are employees a valuable asset of the firm?
Teaching Tip:
If you are interested in obtaining the mission statement for a particular company, a good place to look is the
company’s Web site or its annual report. Annual reports can be obtained directly from a company or through a
service that disseminates annual reports. An example of the latter is The Public Register’s

VI. WRITING AND EVALUATING MISSION STATEMENTS

A. Perhaps the best way to develop a skill for writing and evaluating mission statements is to study actual
company missions. Therefore, eight mission statements are presented in Table 2-3.

Teaching Tip: Along with vision statements and mission statements, some organizations articulate corporate
“values” statements, which describe the underlying principles that determine everything the organization does and
stands for. The following are examples of companies that have placed their value statements on their Web sites.

Q. 3 Explain how to conduct an external strategic management audit? (20)

Ans:

Every company, no matter how big or small, is managed in some way, whether the management function is
formally assigned to a specific employee or not. Even in companies with more casual workplace cultures,
approaching management from a strategic, long-term perspective can increase a business’s chance of
success. Strategic management is the process of employing that kind of large-scale, objective-oriented
approach through the use of three major components: environmental scanning, strategy formulation and
implementation and strategy evaluation.

Environmental Scanning

The first step in the strategic management process is environmental scanning, sometimes referred to as simply
“scanning.” Basically, this is a process of quickly reviewing and processing anything that might have an impact on
your business and how it operates.

Factors both inside and outside the company can influence a business. Managers are usually familiar with what’s
going on inside their companies, so internal factors may be more obvious initially. For example, if your company is
experiencing an unusually high rate of employee turnover, it's an issue management needs to address. Other kinds
of internal factors include sales numbers, productivity rates and profit margins.

External factors may take a little more effort to find and process. Smart managers try to stay on top of industry
news and data, since these factors may predict or reflect changes that will sooner or later hit their companies.
Other external factors that should be scanned include overall data on the economy, the target market and the
company’s competitors.

Each of these factors – internal and external – can become part of a thorough SWOT analysis. This is a strategic
review of a company’s strengths, weaknesses, opportunities and threats. A SWOT analysis helps give a company a
more accurate snapshot of where it fits into the industry and the economy as a whole and identifies steps it can
take to grow and improve its financial health.

Strategy Formulation and Implementation

Environmental scanning produces a lot of information. Strategic managers use that information and data to
formulate a strategy that can be implemented company-wide.
A strategic manager develops thoughtful strategies to capitalize on the strengths and opportunities identified in
the SWOT analysis. Ideally, the selected strategies also either bypass or minimize the importance of the company’s
weaknesses and threats.

After the business agrees to implement the manager’s proposed strategy, the strategic manager develops an
actionable plan to execute that strategy. Each action or step in the plan is assigned to a specific employee or
department. These workers are accountable for meeting specific goals in order to track the company’s progress
towards the overall objective.

Strategy Evaluation

Implementing a smart strategy isn’t sufficient by itself to meet goals. Once the company’s employees are carrying
out the planned actions, the company must also periodically assess the results of those actions.

As part of their process, strategic managers identify relevant metrics which are carefully monitored and assessed
to make sure the company is on track to meet its goals. Usually, the evaluation phase will set out specific, regular
reporting periods where managers and team leaders measure progress. This kind of scheduled approach helps to
make sure nothing falls through the cracks or gets overlooked.

The strategy evaluation process is crucial in strategic management. This is how managers and businesses learn
what’s working and what still needs to be adjusted to achieve the best possible results.

Ongoing Communication

Each of the three components of strategic management requires excellent, consistent communication to make
sure the company’s objectives are met.

All the stakeholders in a business must communicate well with each other. Ideally, this communication should
offer each party the opportunity for input. This includes not only a business’s employees but also relevant external
stakeholders as well. Vendors, industry leaders, customers and even legislators may have an impact on the
planned strategy. If that’s the case, their input should be considered.

At a minimum, the company should communicate its plans through the appropriate corporate channels. Today’s
technology makes it much easier for busy companies to keep external stakeholders informed. Blogs, email
newsletters and social media mean it’s easier than ever before to communicate clearly with key constituencies.

Q. 4 Which of the three basic functions of finance/accounting do you feel is most important in a small
electronics manufacturing concern, justify your position? (20)
Ans:
Chief Financial Officers (CFO) as well as financial advisors are often found struggling hard discovering the most
important and basic finance and accounting functions. As per the industry leaders, the three basic finance
and accounting functions valid across all the industries include: Procure to Pay (P2P) – This include the steps
involved in starting from sourcing and producing goods and services till the time payment is processed to the
suppliers and vendors. In involves various steps such as invoice processing, vendor data management,
payment processing
According to James Van Horne, the three basic functions of finance are the investment decision, the financing decision,
and the dividend decision. In a small electronics manufacturing concern, the financing decision could be considered
most important because it includes examination of the various methods by which the firm could raise capital
FINANCE/ACCOUNTING
A. Importance of Finance and Accounting
1. Financial condition is often considered the single best measure of a firm’s competitive position and overall
attractiveness to investors. Determining an organization’s financial strengths and weaknesses is essential to
formulating strategies effectively.
2. A firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow, and equity can eliminate
some strategies as being feasible alternatives.
B. Finance/Accounting Functions
1. According to James Van Horne, the functions of finance/accounting comprise three decisions: the investment
decision, the financing decision, and the dividend decision.
2. Basic Types of Financial Ratios. Financial ratios are computed from an organization’s income statement and
balance sheet. Trend analysis, illustrated in Figure 4-2, is an example of a technique that incorporates both
the time and industry average dimensions of financial ratios. Four major sources of industry-average financial
ratios are:
a. Dun & Bradstreet’s Industry Norms and Key Business Ratios
b. Robert Morris Associates’ Annual Statement Studies
c. Almanac of Business & Industrial Financial Ratios
d. Federal Trade Commission Reports
Key Financial Ratios of key financial ratios showing how each ratio is calculated and what each ratio measures.
They can be classified into five types.
Liquidity ratios measure a firm’s ability to meet maturing short-term obligations.
Current ratio
Quick (acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed by debt.
Debt-to-total-assets ratio
Debt-to-equity ratio
Long-term debt-to-equity ratio
Times-interest-earned (coverage) ratio
Activity ratios measure how effectively a firm is using its resources.
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Profitability ratios measure management’s overall effectiveness as shown by returns generated on sales and
investment.
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets
Return on stockholders’ equity
Earnings per share
Price-earnings ratio
Growth ratios measure the firm’s ability to maintain its economic position in the growth of the economy and
industry.
Sales
Net income
Earnings per share
Dividends per share

Q. 5 Describe the relationship between annual objectives and policies. (20)

Ans:

Annual objectives are short term goals that would usually contribute to the achievement of the longer term more
strategic goals of an organization. Policies are the rules of how the company conducts business internally, they are
a means of communicating requirements with staff and are usually formally documented. They are the means by
which annual objectives will be achieved (David, F. R., & David, F. R., 2015, pg. 12).
Here is an example; Strategic goal: - To improve return to shareholders by 50% over the next three years, through
reduction

of the cost of production Annual objective: - To implement a "just in time" delivery system to reduce storage costs
by 50% Policy: - When stock levels reach a certain point the line manager is responsible for contacting the vendor
to arrange for a delivery - Stock levels above a certain volume are not to be stored in the warehouse In the
example you can see how annual objectives contribute to the achievement of strategic objectives and policy
contributes to the achievement of annual objectives. Annual objectives and policies both outline the organizations
expectations of its employees making them very important in strategy implementation (David, F. R., & David, F. R.,
2015, pg. 12).

Objectives are the principles that guide a business, and policies are the rules that embody these objectives. When
policies align with objectives, a business operates in service of an overall idea that unifies its products and its
protocols. When a company's policies do not support its objectives, employees may feel disoriented, confused or
disillusioned.

Objectives
A company's objectives can be as practical as earning a profit or as noble as improving the environment. A business
that clearly identifies its objectives can make choices that further these objectives regarding everything from
where it banks to what it sells. Having clear objectives enables a business to focus its internal operations, making
targeted investments in shrewd purchases. Clear objectives also help a company focus its marketing efforts and
create a convincing, easily identifiable brand.
Policies
Policies are specific rules and guidelines. Businesses create and implement policies in order to achieve consistency
and outline protocols. Well thought-out and clearly articulated policies serve as a baseline for day-to-day decision-
making as well as guidance for unexpected situations. Policies may be formally written rules and regulations or
unspoken conventions that guide company culture. Successful business policies are broad enough to allow
employees leeway but specific enough to offer meaningful guidance.
Similarities
Both objectives and policies are expressions of a company's vision. Both represent guiding principles that embody
broad ideas with enough specificity to be useful. For example, a company founded with the objective of creating
jobs for inner city youth defines its objective with enough specificity to communicate that it is helping youth rather
than adults and inner city residents rather than suburbanites. Its policies express its objective with a greater
degree of specificity, outlining the company's strategy for creating jobs and selecting applicants.
Differences
Policies are more practical than objectives, addressing situations and possibilities rather than ideas and goals.
Policies are based on objectives, which offer unifying themes and long-term visions. Objectives are not based on
policies, which offer relatively narrow insights tailored to specific situations. A company that has policies without
objectives runs the risk of getting lost in the details, and a business that has objectives without policies will have
trouble focusing and getting things done.