Business Policy & Strategy: Chapter Three

Business Policy & Strategy: Chapter Three The Field of Action: The Business System Murdick, Moor, Babson & Tomlinson Sixth Edition, 2000

Field of Action • A system is a set of elements and/or related subsystems working together to achieve common objectives. • A business system is comprised of people, equipment, and facilities that process input from the environment to produce output such as goods, services, information, scrap, and waste. See Figure 3.1(p16)

General Management • Various GM positions include: • “Chairmen” of the Board, • Vice Chairmen • Directors • CEO or President • COO • Executive Vice-President • Group VP or Division VP • GM • Director (Domestic or International)

General Managers • Responsible for the profit and loss and for long-term survival • GM must think and act as a generalist rather than a specialist • GM must take a systems’ view and approach to management

General Managers • Must seek balance among • Conflicting objectives of subsystems • Differing value systems of internal and external influences (stakeholders) • Opposing views of priorities and emphasis, and • Conflicting proposals for criteria in all areas.

Organizing for Action • Organization consists of interpersonal relationships, communication processes, and a climate that promotes cooperation that are held together in the formal organization framework. • A major change in strategy usually requires a major change in organizational structure!

Legal Organizational Forms • Individual proprietorships • Partnerships • Limited partnerships • Corporations

Organizational Options • Joint ventures/ IJVs – two parent firms establish a third separate firm which limits liabilities; may be international if firms are from different nations • Strategic alliances – generally marketing arrangements with no shared equity

Organizational Options • Acquisitions – one firm purchases another firm with the acquired firm’s stock generally increasing in price while the acquiring firm’s price drops. The acquired firm ceases to exist. May be international as a means of expansion into global markets. • Mergers – two firms become one firms in a joining of equals. Firm A and Firm B become AB. International if firms are from different nations.

Small Firms • Tend to be very decentralized, informal and people wear many hats and are very flexible about the jobs they perform • Many small firms incorporate in order to limit liability. Small entrepreneurs are usually the dominant force in decision making and don’t avail themselves of the expertise on the Board of Directors, although most aren’t large enough to have a BOD.

Small Firms • Tend to use the functional organization style as they grow. They have departments such as marketing, accounting, human resources, production, and finance.

Medium-sized Firms • Common measures of size between medium and large firms include assets, sales, equity and number of employees. • Medium sized firms have access to capital in that the firm has borrowing power or may ‘go public’. • Debt is bank financing while equity financing involves the issuing of stock to raise funds for expansion.

Medium-sized Firms • Tend to retain centralized control • Product, geographical or process structure • Relatively flat structure • Span of control • Broad vs. Narrow • Centralized vs. Decentralized

Decentralized Structures • Delegation • Empowerment • Decision-making at lower levels • Tend to move more quickly • More motivation and creativity • Organic vs. mechanistic

Large Firms • Divisional or matrix forms • Strategic business units • Line vs. staff • More hierarchical • Have typically delayered or flattened in recent times to eliminate costs

Basic Organizational Forms for Large Firms • By People • By Product • By Geographic Area • By Process • By Function • By Phase of Activity

Board of Directors • Comprised of • internal members (EVP, President) • External members (bankers, lawyers) • Greater liability of Directors currently • BOD selects the CEO or President who handles day to day activities

Business Problems • A problem whose solution requires action based upon executive decision to pursue a particular course of action • Well-structured vs. ill-structured • We typically handle well-structured problems much better

Problem Solving • Identify the problem • Identify most potential alternatives • Evaluate each alternative • Select the appropriate solution • Implement solution • Evaluate solution’s effectiveness • Monitor for future fit

Business Policy & Strategy: Chapter Three