BBA Management Strategic and Operational Plans study Material Notes
Table of Contents
BBA Management Strategic and Operational Plans study Material Notes: Strategy and Tactics Levels of Strategy Role of Strategy Formulation of Strategy Implementation of Strategy Policy and Strategy a Comparison Characteristics of a Sound Policy Sources of policies Procedures Policy and Procedure a Comparison ( Most Important Notes for BBA I Semester Examinations )
MCom I Semester Business Environment Study Material Notes
Strategic and Operational Plans
Every organisation is involved in a complicated pattern decisions of setting long-term objectives to specific decision “a complicated pattern of decisions ranging from broad Some of these decisions have long-term orientation term objectives to specific decisions about day-to-day operations. context of earlier decisions. Decisions with long-term orientation the context of planning, these decisions generate strategic and operational plans. We have seen the concept of strategic and operational plans in Chapter 6. The strategic plans are in the form of long-term specific objectives and strategies. In order to put strategies in operations, managers have to formulate operational or tactical term of various standing plans like policies, procedures, rules, methods and single-use plans like projects, budgets, and standards. Since organisational activities are performed on continuous basis, the single-use plans are undertaken on regular basis to put the strategic plans in operation. Let us see how different plans work in organisations.
Strategic and Operational Plans
Strategy
The term ‘strategy’ has entered the management literature comparatively much later than its use in Military Science. Game theorists have used strategy in the same sense in which the term ‘policy’ was used earlier. Therefore, the concept of strategy and various actions involved are quite confusing and, sometimes, even contrasting. At first, the term strategy was used in management in terms of Military Science to mean what a manager does to offset actual or potential actions of competitiors. The term is still being used in the same sense though by few only. Originally, the term ‘strategy’ has been derived from Greek word ‘strategos’ which means general. The word strategy, therefore, means the art of general.
When the term ‘strategy’ is used in military sense, it refers to actions that can be taken in the light of action taken by opposite party. According to the Oxford Dictionary, “military strategy is the art of so moving or disposing the instruments of warfare (troops, ships, aircrafts, missiles, etc.) as to impose upon the enemy the place, time, and conditions for fighting by oneself. Strategy ends, or yields to tactics when actual contact with enemy is made.”
In management, the concept of strategy is mostly taken in a slightly different form rather than in military form; it is taken more broadly. However, even in this form, various experts of the field do not agree about the precise scope of strategy. In earlier views, strategy was taken in a very comprehensive way. For example, Chandler, who made a comprehensive analysis of the inter relationship among the environment, strategy, and organisation structure, has defined the term strategy in 1962 as follows:
“Strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of the course of action and the allocation of resources necessary forcarrying out these goals.”
Similar views have been held by Professors at Harvard Business School who have made considerable contributions in the development of strategic management. One of them (Andrews) has defined strategy as follows:
The above two definitions of strategy are quite comprehensive and include objective setung as part of strategy. As against this, Stanford Research Institute, USA takes a different! View when it states that strategy is a way in which the firm, reacting to its environment. deploys its principal resources and marshalls its main efforts in pursuit of its purpose. Almost similar view is held by Glueck who defines strategy as follows:
Two approaches of defining strategy, particularly in terms of the actions included in strategy, are different with former approach including objective setting as part of the strategy while latter excluding it. This difference is likely to continue unless we arrive at universally acceptable concept of strategy. For the purpose of this, in a more recent definition, Porter has viewed strategy as “the creation of a unique and valued position involving a different set of activities.” According to him, a company that is strategically positioned “performs different activities from rivals or performs similar activities in different ways.”4 He has taken this stand on the basis of the assumption, it holds true also, that many companies believe that they can establish a long-lasting advantage by performing similar activities better than their competitors. But today, competitors can rapidly copy the operationallyeffective compamy using benchmarking and other tools, thus, diminishing the advantage of operational effectiveness. Therefore, strategy must distinguish an operationally-effective company in terms of strategic position from an equally operationally-effective company. Thus, we can define strategy as follows:
1 Strategy relates the firm to its environment, particularly the external environment in all actions whether objective setting, or actions and resources required for its achievement. This definition emphasises the systems approach of management and treats an organisation as part of the society consequently affected by it.
2. Strategy is the right combination of factors both external and internal. In relating an organisation to its environment, the management must also consider the internal factors too, particularly its strengths and weaknesses, to take various courses of action.
3. Strategy is relative combination of actions. The combination is to meet a particular condition, to solve certain problems, or to attain a desirable objective. It may take any form; for every situation varies and, therefore, requires a somewhat different approach.
4. Strategy may even involve contradictory action. Since strategic action depends on environmental variables, a manager may take an action today and revise or reverse his steps tomorrow depending on the situations.
5. Strategy is forward looking. It has orientation towards the future. Strategic action is required in a new situation. Nothing new requiring solutions can exist in the past, and so strategy is relevant only to the future.
Strategic and Operational Plans
Strategy and Tactics
It is beneficial to make distinction between strategy and tactics so that managers can concentrate themselves on strategic functions rather than engaging in tactical functions. Organisational decisions range across a spectrum, having a broad master strategy at one end and minute tactics at the other. The major difference between strategy and tactics is that strategy determines what major plans are to be undertaken and allocates resources to them, while tactics, in contrast, is means by which previously determined plans are executed. Beyond this major difference, there may be some other differences which can be understood better by analysing military use of strategy and tactics.
Carl von Clausewitz, a Prussian army general and military scientist, defines military strategy as “making use of battles in the furtherance of the war” and the tactics as ‘the use of armed forces in battle.” A successor to Clausewitz, Count von Moltke is more lucid in making distinction between strategy and tactics. He states that:
The basic goal of strategy accordingly is to break the will of the army, deprive him of the means to fight, occupy his territory, destroy or obtain control of his resources, or otherwise make him submit. The goal of tactics is success in a given action which is only one part in a group of related military actions. A further distinction between strategy and tactics as
ary Science is made on the basis of delegation of decision-making authority Strategic decisions are not delegated too low in the organisation. Normally the authority is not delegated below the levels than those which possess the perspective required for the most effective decisions.
Such a distinction between strategy and tactics is quite sharp. However, business is different from war in its true perspective not only in terms of its objectives vis-a-vis its competitors but also in terms of process of achievement of objectives. In business, there is seldom a win-lose situation as is the case with the war. Therefore, the distinction should be made between strategy and tactics in business terms. Such distinctions can be made as follows:
1 Level of Conduct. As discussed earlier, strategy is developed at the highest level of management either at the headquarters or at maior divisional offices and related exclusively to decisions in the province of these levels. Tactics is employed at and relates to lower levels of management.
2. Periodicity. The formulation of strategy is both continuous and irregular. The process is continuous but the timing of decision is irregular as it depends on the appearance of opportunities, new ideas, crisis, management initiative, and other non-routine stimull.
3. Time Horizon. Strategy has a long-term perspective, specially the successful strategies followed for quite long periods. In occasional cases, it may have short-term duration. Thus, depending on the nature and requirement, its time horizon is flexible, however, emphasis is put on long term. On the other hand, time horizon of tactics is short run and definite. The duration is uniform, for example budget preparation.
4. Uncertainty. Element of uncertainty is higher in the case of strategy formulation and its implementation. In fact, strategic decisions are taken under the conditions of partial ignorance. Tactical decisions are more certain as these are taken within the framework set by the strategy. Thus, evaluation of tactics is easier as compared to evaluation of strategy.
5. Information Needs. The total possible range of alternatives from which a manager can choose his strategic action is greater than tactics. A manager requires more information for arriving at strategic decision. Since an attempt is made to relate the organisation to its environment, this requires information about the various aspects of environment. Naturally, the collection of such information will be different. Tactical informaton is generated within the organisation particularly from accounting procedures and statistical sources.
6. Type of Personnel Involved in Formulation. Generally, separate group of managerial personnel are involved in strategy and tactics formulation and their implementation. As discussed earlier, strategic decisions are never delegated below a certain level in the managerial hierarchy. The basic principle in this context is not to delegate below the levels than those possess the perspective required for most effective strategic decisions. Tactical decisions can be taken by personnel at lower levels because these involve minute implementation of strategic decisions.
7. Subjective Values. The formulation of strategy is affected considerably by the personal values of the person involved in the process. For example, what should be the goals of an organisation is affected considerably by the personal values of the persons concerned. This aspect will be taken for further discussion in this text later. On the other hand, tactics is normally free from such values because this is to be taken within the context of strategic decisions.
8. Importance. Strategies are most important factors of organisation because they decide the future course of action for the organisation as a whole. On the other hand, tactics are of less importance becuase they are concerned with specific part of the organisation. This difference, though seems to be simple, becomes important from managerial action point of view.
Though these differences between strategy and tactics are there, often the lines of demarcation between these two are blurred both conceptually and operationally. At the one extreme end, the differences are crystal clear, as discussed above. But these differences may not always hold true because tactics is generated by strategy and may rightly be called substrategy. What is one manager’s strategy is another manager’s tactics and viceversa. For example, strategies are developed at the headquarters in the strategic planning process. Substrategies within this strategic planning may then be pursued by various divisions of the company. Thus, what might be considered tactical plans at the headquarters may be termed as strategy at the divisional levels. Thus, depending on the level of the organisation, an action may be strategic or tactical.
Strategic and Operational Plans
Levels of strategy
Strategic and Operational Plans
Corporate-level Strategy. Corporate-level strategy occupies the highest level of strategic decision making and covers actions dealing with the objective of the firm, acquisition and allocation of resources, and coordination of strategies of various SBUs for optimal performance. Such decisions are made by top management of the organisation. The nature of strategic decisions tends to be value-oriented, conceptual, and less concrete than decisions at the business or functional level.
Business-level Strategy. Business-level strategy is applicable in those organisations which have different businesses and each business is treated as strategic business unit (SBU). The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organisation. Since each product/market segment has a distinct environment, a SBU is created for each such segment. For example, Reliance Industries Limited operates in textile fabrics, yarns, fibres, and a variety of petrochemical products. For each product group, the nature of market in terms of customers, competition, and marketing channel differs. Therefore, it requires different strategies for its different product groups. Thus, where SBU concept is applied, each SBU sets its own strategies to make the best use of its resources (its strategic advantages) given the environment it faces. At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas, and coordination between them for making optimal contribution to the achievement of corporate-level objectives. Such strategies operate within the overall strategies of the organisation. The corporate strategy sets the long-term objectives of the firm and the broad constraints and policies within which a SBU operates. The corporate level will help the SBU define its scope of operations and also limit or enhance the SBU’s operations by the resources the corporate level assigns to it.
There is a difference between corporate-level and business-level strategies. For example, Andrews says that:
Corporate-level strategy is not the sumtotal of business-level strategies of the corporation uit deals with different subject-matter. While the corporation is concerned with and has! impact on business strategy, the former is concerned with the shape and balancing of growth and renewal rather than in market execution.
Functional-level Strategy. Functional-level strategy, as is suggested by the title, relates to a single functional operation and the activities involved therein. Decisions at this level within the organisation are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations. Functional-level strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area, and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives. Below the functional-level strategy, there may be operations-level strategies as each function may be dividend into several subfunctions. For example, marketing strategy, a functionallevel strategy, can be subdivided into promotion, sales, distribution, pricing strategies with each subfunction strategy contributing to functional-level strategy.
Strategies at all the three levels are interlinked in which a higher-level strategy generates a lower-level strategy and a lower-level strategy contributes to the achievement of the objectives of higher-level strategy.
Strategic and Operational Plans
Role of Strategy
The role of carefully formulated strategies is quite significant in all types of organisations business or non-business, public sector or private sector, large or small-in developed countries or underdeveloped countries. Looking at the importance of strategies in organisational effectiveness, a new branch of management, known as strategic management has been developed which deals with strategy formulation and implementation.
The systems approach of management suggests interaction of an organisation with its environment on continuous basis. This interaction can better be maintained through formulation of suitable strategies. In fact, the function of formulation of strategies has become so important that it is equated with total top management function because it is the top management which is primarily responsible for organisational adaptation to the needs of environment.
Careful strategies play significant role in the success of an organisation. If we look at the Indian industrial scene over the last generation or so, we find that great names like Martin Burn, Jessops, Andrews have touched the rock bottom, while total unknowns few years ago like Reliance, Larsen and Toubro, etc., have touched gigantic heights. Similarly, companies like Hindustan Lever, ITC Limited, TISCO, and TELCO have maintained their high profile. There are numerous such examples of good companies in the Indian scene as well as the world over which have been successful because they have adopted suitable strategies. This happens because strategies contribute in several ways in managing an organisation the more important of them are as follows:
Strategic and Operational Plans
1 Framework for Operational Planning. Strategies provide the framework for plans by channelling operating decisions and often predeciding them. If strategies are developed carefully and understood properly by managers, they provide more consistent framework for operational planning. If this consistency exists and applied, there would be deployment of organisational resources in those areas where they find better use. Strategies define the business area both in terms of customers and geographical areas served. Better the definition of these areas, better will be the deployment of resources. For example, if an organisation has set that it will introduce new products in the market, it will allocate more resources to research and development activities which is reflected in budget preparation.
2. Clarity in Direction of Activities. Strategies focus on direction of activities by specliying what activities are to be undertaken for achieving organisational objectives. They make the organisational objectives more clear and specific. For example, a business organisation may define its objective as profit earning or a non-business organisation may define its objective as social objective. But these definitions are too broad and even vague for putting them into operation. They are better spelled by strategies which focus on operational objectives and make them more practical. For example, strategies will provide how profit objective can be sharply defined in terms of how much profit is to be earned and what resources will be required for that. When objectives are spelled out in these terms, they provide clear direction to persons in the organisation responsible for implementing various courses of action. Most people perform better if they know clearly what they are expected to do and where their organisation is going.
3. To Increase Organisational Effectiveness. Strategies ensure organisational effectiveness in several ways. The concept of effectiveness is that the organisation is able to achieve its objectives within the given resources. Thus, for effectiveness, it is not only necessary that resources are put to the best of their efficiency but also that they are put in a way which ensures their maximum contribution to organisational objectives. In fact, this can be done by taking strategic management which states the objectives of the organisation in the context of given resources. Therefore, each resource of the organisation has a specific use at a particular time. Thus, strategies ensure that resources are put in action in a way in which these have been specified. If this is done, organisation will achieve effectiveness.
4. Personnel Satisfaction. Strategies contribute towards organisational effectiveness by providing satisfaction to the personnel of the organisation. In organisation where formal strategic management process is followed, people are more satisfied by definite prescription of their roles thereby reducing role conflict and role ambiguity. If the decisions are systematised in the organisation, everyone knows how to proceed, how to contribute towards organisational objectives, where the information may be available, who can make decisions, and so on. Such clarity will bring effectiveness at the individual level and consequently at organisational level. Strategies provide all these things in the organisation through which everything is made crystal clear.
Looking into the role of strategy, Ross and Kami have suggested that without a strategy, the organisation is like a ship without a rudder, going around in circles. It is like a tramp: it has no place to go.” They ascribe most business failures to lack of strategy, or the wrong strategy, or lack of implementation of a reasonably good strategy. They conclude from their study that without appropriate strategy effectively implemented, failure is a matter of time.
Strategic and Operational Plans
FORMULATION OF STRATEGY
Formulation of a strategy is a creative and analytical process. It is a process because particular functions are performed in a sequence over the period of time. The process involves a number of activities and their analysis to arrive at a decision. Though there! may not be unanimity over these activities particularly in the context of organisational
Strategic and Operational Plans
The process set out above includes strategy formulation and its implementation, what has been referred to as strategic management process. The same process can be applied to both strategy and policy. The figure suggests the various elements of strategy formulation process and the way they interact among themselves. Accordingly, the various elements are organisational mission and objectives, environmental analysis, corporate analysis, identification of alternatives, and choice of alternative. Up to this stage, the formulation is complete. However, implementation is closely related with formulation because it will provide feedback for adjusting strategy. A brief discussion of each element will be helpful to understand the problems involved in each.
1 Organisational Mission and Objectives. Organisational mission and objectives are the starting point of strategy formulation. As discussed earlier, mission is the fundamental unique purpose of an organisation that sets it apart from other organisations and objective is the end-result which an organisation strives to achieve. These together provide the direction for other aspects of the process.
2. Environmental Analysis. The second aspect of the process is the environmental analysis. Since the basic objective of strategies is to integrate the organisation with its environment, it must know the kind of environment in which it has to work. This can be known by environmental analysis. The process of environmental analysis includes collection of relevant information from the environment, interpreting its impact on the future organisational working, and determining what opportunities and threats-positive and negative aspectsare offered by the environment. The environmental information can be collected from various soruces like various publications, verbal information from various people, spying, and forecasting. The process of environmental analysis works better if it is undertaken on continuous basis and is made an intrinsic part of the strategy formulation.’
3. Corporate Analysis. While environmental analysis is the analysis of external factors, corporate analysis takes into account the internal factors. These together are known as SWOT (strengths, weaknesses, opportunities, and threats) analysis. It is not merely enough to locate what opportunities and threats are offered by the environment but equally important is the analysis of how the organisation can take the advantages of these opportunities and overcome threats. Corporate analysis discloses strengths and weaknesses of the organisation and points out the areas in which business can be undertaken. Corporate analysis performed by identifying the factors which are critical for the success of the present of Tuture business of the organisation and then evaluating these factors whether they are contributing in positive way or in negative way. A positive contribution is strength and a negative contribution is weakness.
4. Identification of Alternatives. Environmental analysis and corporate analysis taken together will specify the various alternatives for strategy. Usually, this process will bring large number of alternatives. For example, if an organisation is strong in financial resources, these can be used in many ways, taking several projects. However, all the ways or projects cannot be selected. Therefore, some criteria should be set up to evaluate each alternative. Normally, the criteria are set in the light of organisational mission and objectives.
5. Choice of Strategy. The identification and evaluation of various alternatives will narrow down the range of strategies which can seriously be considered for choice. Choice is deciding the acceptable alternative among the several which fits with the organisational objectives. Normally at this stage, personal values and expectations of decision maker play an important role in strategy because he will decide the course of action depending on his own likings and dislikings. This happens because in one way, the organizational objectives reflect the personal philosophy of individuals particularly at the top management level.
6. Implementation. After the strategy has been chosen, it is put to implementation, that is, it is put into action. Choice of strategy is mostly analytical and conceptual while implementation is operational or putting into action. Various factors which are necessary for implementation are design of suitable organisation structure, developing and motivating to take up work, designing effective control and information system, allocation of resources, etc. When these are undertaken, these may produce results which can be compared in the light of objectives set and control process comes into operation. If the a further analysis is required to find out the reasons for the gap and taking suitable actions to overcome the problems because of which the gap exists. This may also require a change in strategy if there is a problem because of the formulation inadequacy. This puts back the managers at the starting point of the strategy formulation.
Strategic and Operational Plans
IMPLEMENTATION OF STRATEGY
Once the creative and analytical aspects of strategy formulation have been settled, the managerial priority is one of converting the strategy into operationally effective action. Indeed a strategy is never complete, even as formulation, until it gains a commitment of the organisation’s resources and becomes embodied in organisational activities. Therefore, to bring the result, the strategy should be put to action because the choice of even the soundest strategy will not affect organisational activities and achievement of its objectives. Therefore, effective implementation of strategy is a must for the organisation. Implementation of strategy can be defined as follows:
Judging from this definition, it can be observed that the scope of managerial activities associated with strategy implementation is virtually coexistensive with the entire management process. This is because the entire management process is geared up according to the needs of the strategy. In particular, following factors are important in strategy implementation:
1 Institutionalisation of Strategy. The first basic action that is required for putting a strategy in into operation is its institutionalisation. Since strategy does not become either acceptable or effective by virtue of being well designed and clearly announced, the successful Plementation of strategy requires that the strategy framer acts as its promoter and defender. Often strategy choice becomes a personal choice of the strategist because his personality variables become an influential factor in strategy formulation. Thus, it becomes a personal strategy of the strategist. Therefore, there is an urgent need for the institutionalisation of strategy because without it, the strategy is subject to being undermined. Therefore, it is the role of the strategist to present the strategy to the members of the organisation in a way that appeals to them and brings their support. This will put organisational people to feel that it is their own strategy rather than the strategy imposed on them. Such a feeling creates commitment so essential for making strategy successful.
Strategic and Operational Plans
2. Setting Proper Organisational Climate. Setting organisational climate relevant for strategy implementation is important for making strategy to work. Organisational climate refers to the characteristics of internal environment which conditions the cooperation, the development of the individuals, the extent of commitment and dedication of people in the organisation, and the efficiency with which the purpose is translated into results. Organisations whose strategy is implemented with conducive climate are more effective than those whose are not. People are the instruments in implementing a particular strategy and organisational climate is basically a people-oriented attempt. A top manager can play an important role in shaping the organisational climate not only by providing standards for what others do but also what he does because organisational climate is a matter of practice rather than the precept.
3. Developing Appropriate Operating Plans. Operating plans are the action plans, operational programmes, and decisions that take place in various parts of the organisation. If they are made to reflect desired strategic results, they contribute to the achievement of organisational objectives by focusing attention on those factors which are important. For example, in budgeting, more resources will be allocated on those factors which are critical to the success of the organisation as spelled out during the strategy formulation process. There are various ways of making sure that operating plans contribute. If every manager understands strategy, he can certainly review the programme recommendations of staff advisers and line subordinates to see that they are consistent with the requirements of the strategy. Major programmes can be reviewed by appropriate committees to see if they contribute positively. This lends an aura of formality to the programme decisions and their influences on strategy may become clear.
4. Developing Appropriate Organisation Structure. Organisation structure is the pattern in which the various parts of the organisation are interrelated or interconnected. It prescribes relationships among various positions and activities. For implementing strategy, the organisation structure should be designed according to the needs of the strategy. The relationship between strategy and structure can be thought of in terms of utilising structure for strategy implementation because structure is a means to an end, that is, to provide facilities for implementing strategy. Therefore, both should be integrated. In the absence of such an integration, outcome may be confusion, misdirection, and splintered effort within the organisation. There can be various ways of designing an organisation structure. However, the maior issues involved in designing the structure to fit the strategy involves the answers of the following questions: (1) What should be the different units of the organisation? (t) What components should join together and what components should be kept apart? (iii) What is the appropriate placement and relationship of different units?
5. Periodic Review of Strategy. There should be periodic review of strategy to find out whether the given strategy is relevant. This is required because even the carefully developed strategies might cease to be suitable if events change, knowledge becomes more clear, or it appears that the environment will not be as originally thought. Thus, strategy should be reviewed from time to time. What should be frequency for such a review is not universal but major strategies should be reviewed at least once a year. In fact, this is done by most of the organisations who believe in relating themselves with the environment.
Strategic and Operational Plans
6. Analysis of Environment. The company’s success lies in the fact that it identified the opportunities offered by the environment and acted accordingly. The company was mainly in the business of export and import, exporting mainly high quality fabrics and importing nylon yarn. Over the period of time, it realised that the Indian market was offering slowly the scope for introducing high-priced premium fabrics. Other manufacturers did not take up this because they thought that the total market was quite limited. No doubt, market was narrow but slowly it was offering potential for rapid increase. Therefore, Reliance entered the field at the right time.
7. Building Internal Strengths. Reliance built up strengths over the period of time. At the initial stage, it had the advantages of doing business in the area of high-priced fabrics because of its export. Its production capacity was limited. Therefore, the company took the steps to increase production capacity. Various actions taken were: (i) expansion of filament yarn twisting capacity; (ii) expansion of crimped yarn twisting capacity: (iii) expansion of twisting capacity; (iv) expansion of processing department by installing jet dyeing machines; (v) expansion of printing facilities; and (vi) expansion of spinning capacity.
8. Marketing Strategy. The company adopted unique marketing strategy. It concentrated in those areas in which the competitors were not doing well, that is, operation in high-priced, high-quality, moderndesigned fabrics. For this purpose, it offered products of matching requirements. Further, it offered family buying of fabrics from one store, that is, suitings, shirtings, sarees, and dress materials. It launched a massive advertising and sales promotion campaign allocating high budget for the purpose. The product positioning of ‘Vimal, the brand name of company’s fabrics, was to suggest that wearing of the kind of fabrics offered by the company was the symbol of high-income group. The company provided various incentives to its dealers by offering them working capital support, facilities for local advertisements. obtaining their commitment by allotting them shares of the company, besides offering suitable commission.
9. Financial Strategy. The company needed huge funds for its expansion programme quite frequently. For this purpose, it did not depend on the loans from financial institutions. It entered several times in the capital market with convertible debenture issues. Since the capital market was buoyant, it did not have any problem in selling its securities. It offered conversion facilities to the holders of non-converti portion of the debentures. At most of the times, the rate of company’s shares was high and, therefore, the conversion was at very high premium. For example, in one case, the rate of conversion was one deben of Rs. 100 each into 1.4 shares of Rs. 10 each. The conversion resulted in building reserves on share premium account.
Strategic and Operational Plans
Policy
The term ‘policy has more precise definition as compared to strategy. It has been derived n the Greek word ‘politeia’ meaning citizen and Latin word ‘politis’ meaning polished that is, to say clear. According to New Webster Dictonary, policy means “the art of manner of governing a nation, the line of conduct which rulers of a nation adopt on a particular question specially with regard to foreign countries, the principle on which any measure or course of action is based.” While these descriptions of policy relate to any field, policy in management context is defined by Weihrich and Koontz as follows:
1 A policy provides guidelines to the members of the organisation for deciding a course of action and, thus, restricts their freedom of action. Policy provides and explains what a member should do rather than what he is doing. Policies, when enforced, permit prediction of roles with certainty. Since a policy provides guidelines to thinking in decision making, it follows that it must allow some discretion, otherwise it will become a rule.
2. Policy limits an area within which a decision is to be made and assures that the decision will be consistent with and contributive to objectives. A policy tends to predecide issues, avoid repeated analysis, and give a unified structure to other types of plans, thus, permitting managers to delegate authority and still retaining control of action. For example, if the organisation has framed a policy that higher positions in the organisation will be filled by internal promotion, the managers concerned can deal with the situation in this light whenever a vacancy at higher level arises. Thus, organisation gets assurance that higher positions are filled by internal members without further control.
3. Policies are generally expressed in qualitative, conditional, or general way. The verbs most often used in stating policies are to maintain, to continue, to follow, to adhere, to provide, to assist, to assure, to employ, to make, to produce, or to be. Such prescriptions may be either explicit or these may be interpreted from the behaviour of organisation’s members, particularly at the top level. When such a behaviour is interpreted as policy guideline, it is normally known as precedent, that is what has happened in the past on a particular issue if there is no clearly specified declaration.
Strategic and Operational Plans
Policy and Strategy: A Comparison
Strategy is now the more common term for what used to be called policy, though there is no consensus on this also. For example, some writers make distinction between the two referring as the general or grand strategy as policy and competitive strategy as the strategy used in military sense. The situation is, therefore, still confusing. Steiner has observed that for some years and after much travail, the term ‘policy’ was fairly understood. Then the game theorists began to use the term ‘strategy’ with the result that management literature now is thoroughly confused about its meaning and relationship to policy. However, in this text, two terms have been used with fairly different meaning and based on that, the difference between the two can be identified.
A distinction between policy and strategy is made on the basis that former is a guideline to the thinking and action of those who make decisions while the latter is concerned with the direction in which human and physical resources are deployed in order to maximise the chances of achieving organisational objectives in the face of environmental variables. Ansoff makes difference between policy and strategy by putting that “policy is a contingent decision whereas strategy is a rule for making decision.”12 A contingent event is recognised because it is repetitive but the specific occurrence cannot be specified. For such repetitive events, it is not worth while to decide every time what to do when such a contingency arises. It is better to decide in advance what will be done in such a case. For example, promotion policy provides guideline about how promotion decision will be taken when such a case arises. Therefore, the guideline is decided in advance of the actual happening. If the case for promotion arises, the decision will not be a fresh one but the matter will be decided in the light of policy prescription. On the other hand, strategy is decided under the condition of partial ignorance because some of the facts about the environment are not fully known but assumptions are made about them. For example, if an organisation thinks of expanding its business (a strategic decision), it may not be sure which way this can be done because this is not an internal matter for the organisation but the decision has to be made in the light of both external and internal factors. Naturally, decision making under two casespromotion and expansion of business—will be different.
Another distinction between policy and strategy is made on the basis of delegation of authority for decision making and implementation. Since policy provides guidelines for decisions, it can be delegated downward in the organisation. In fact, the policy is prescribed for the people about what they are expected to do in certain cases. Strategy cannot be delegated because its formulation may require last-minute change in the decision depending on the situations.
Strategic and Operational Plans
Characteristics of a Sound Policy
A policy is somewhat a permanent feature of an organisation. It being a standing plan provides guidelines to managerial decisions. Therefore, policies should be developed on a sound basis. If this is not done, managers have to make decisions again and again. However, what features constitute a sound policy cannot be prescribed universallybecause situations vary so greatly that an organisation may differ from others in respect! of a policy formulation and implementation. However, the soundness of policy can be judged on the basis of following criteria:
1 Does it reflect present or desired organisational practices and behaviour?
2. Is it clear, definite, and explicit leaving no scope for misinterpretation?
3. Does it exist in the areas critical to the success of the organisation?
4. Is it consistent with other policies and does it reflect the timing needed to accomplish the objectives?
5. Is it practical in a given existing or expected situation?
Strategic and Operational Plans
A sound policy will (i specify more precisely how the decision will come—what is to be done, who is to do it, how it is to be done, and when it is to be finished; (ii) establish a followup mechanism to make sure that the decision intended will take place; and (iii) lead to new strengths which can be used for decisions in future. Based on these questions and specifications, some major characteristics of a sound policy can be identified as follows:
1 Relationship to Organisational Objectives. A policy is formulated in the context of organisational objectives. Therefore, it tries to contribute towards the achievement of these objectives. Therefore, in formulation of a policy, those functions or activities which do not contribute to the achievement of objectives should be eliminated. For example, if a policy of filling higher positions from within produces hindrance in attracting talents at higher level but the organisation needs them, the policy can be changed because in the absence of suitable manpower, the organisation may not be able to achieve its objectives.
2. Planned Formulation. A policy must be the result of careful and planned formulation process rather than the result of opportunistic decisions made on the spur of the moment. Since policies are relatively permanent features of the organisation, adhocism should be avoided because it is likely to create more confusion. It is true that it is not possible to solve every problem in the organisation on the basis of policies because new situations may arise; however, for matters of recurring nature, there should be well-established policies.
3. Fair Amount of Clarity. As far as possible, policy should be clear and must not leave any scope for ambiguity. If there is a problem of misinterpretation, the organisation should provide the method for overcoming the ambiguity. Further, policy provides some discretion for managerial decisions but it should minimise the number of cases where decisions are based on personal judgment. If this happens frequently, there should be close scrutiny of the policy and suitable amendments should be made.
4. Consistency. The policy should provide consistency in the operation of organisational functions. Often the organisation formulates various policies in functional areas and each function is related to other functions of the organisation. If the policy in one area is inconsistent with another area, there may be conflict resulting in inefficiency. This happens very frequently in functions having close relations such as production and marketing or Finance and other functions therefore the formulation of policies should be taken in an integrated way so that policies in each area contribute to other areas also
Strategic and Operational Plans
Sources of Policies
Policies relating to management of an organisation may be either formulated by the managers specifically and explicitly or these may be implied, or sometimes these may be imposed by outside agencies. Therefore, there may be formulated, implied, and imposed policies. Besides, there may be situations where no such policy exists and the managers concerned may face difficulty in arriving at a decision and appeal for guidelines. Thus, there may be appealed policy. Formulated Policy. A formulated policy is one which is specified by the organisation for providing guidelines to its members. Most of the policies in private sector organisations fall in this category as every organisation formulates various policies on different aspects. Such a policy flows from higher levels to lower levels in the organisation. This policy may be broad giving general guidance for the action or may be spelled completely so as to leave little scope for definition and interpretation.
Implied Policy. Sometimes, policies may not be clearly stated, and the actions of managers particularly at the higher levels provide guidelines for actions at lower levels. These actions might constitute the policy. Sometimes, the organisation has clearly expressed policies for its image but it is not able to enforce these. In such a case, the action of a decision-maker consciously or unconsciously, depends on his own guidelines, prejudices, and whims. Moreover, in the absence of any specific guidelines, decision is based on individual interpretation of the situations and consequent actions. However, such actions may create chaos in the organisation.
Imposed Policy. Imposed policy arises from the influence of some outside agencies. Such agencies may be government which provides policies for all public sector orga parent organisations overseas in the case of multinational companies operating in a country apex company of a business house, or trade association with which a particular organisation is attached. These agencies may either provide complete guidelines on a subject-matter or provide a broad framework for devising specific policies. For example, in public sector commercial banks, recruitment and selection is done by Banking Service Commiss and individual banks do not have any control over this aspect, or a holding c provide compensation policy for its subsidiary companies, and so on.
Strategic and Operational Plans
Appealed Policy. An appealed policy arises from the appeal made by a subordinate manager to his superior for deciding an important case. The need for such an appeal may arise because the particular case has not been covered by any policy. The appeal is taken upward and the decision made on the case sets a precedent which becomes policy providing guidelines for deciding similar cases in future. However, appealed policies are mostly incomplete and uncoordinated. As such, if frequent appeals are made, managers should visualise and review their policy formulation, its communication, and interpretation so that policy guidelines become more clear and specific.
1 Construction and Acquisition of Hotels. The company has expanded its hotels through construction and acquisition. Its policy in this regard is to construct or acquire hotels having rooms within the range of 300-500. Bigger than this size will look like platform and lower than this size may not create much impact. The locational policy suggests that hotels will be located in the places of the city which may involve higher initial costs but is beneficial from long-term point of view.
2. Foods and Beverages. It is the policy of the company to serve foods and beverages of high quality with right blending. Its basic policy is to attach at least one foreign chef to each hotel to cater the needs of foreign tourists.
3. Servicing. Hotel being a service industry, the company has adopted the policy of personalised service. Every person who comes to the hotel is treated as the guest. An attempt is made to develop sense of belongingness among the customer by emphasizing the concept of our hotel’ instead of ‘my hotel’.
4. Pricing. It is the policy of the company to offer most expensive rooms in the cities in which it operates. At the same time, attempts are made to provide the most value for money in terms of comfort, service, and status. It is the policy of the company to keep the occupancy rate high in which 70-80 per cent rooms are sold to groups at comparatively lower price and the remaining rooms to individuals at higher prices.
5. Financing. It is the policy of the company to do business without involving financial institutions. It has the policy to work first with its own money and then to get public money in the form of deposits and debentures. It has a policy of collecting dues faster and paying the outstanding at the same frequency to avoid interest burden.
6. Manpower. The company has formed a manpower policy of selecting the best available personnel and training and developing them into the best suitable. Therefore, the selection procedure of the company is quite rigorous. Training involves not only in terms of learning only tricks of the trade but also inculcation of right type of attitudes in the personnel.
7. Delegation of Authority. The company has adopted the policy of decentralisation of authority. Each hotel is headed by a general manager who enjoys considerable authorities including the financial authority. Each hotel is treated as independent unit and general manager can make any decision within the overall framework provided by the corporate office. Each hotel manager is authorised to spend 7-8 per cent of revenue from his hotel on refurbishment of the hotel.
