MB0052-SLM-Unit-03

Strategic Management and Business Policy Unit 3

Sikkim Manipal University Page No. 47

Unit 3 Business Policy, Strategic Management

and Business Continuity Planning

Structure

3.1 Introduction

3.2 Caselet

Objectives

3.3 Policy, Strategy, Tactics

3.4 Strategic Management

3.5 Strategic Planning and Strategic Management

3.6 Benefits of Strategic Management

3.7 Business Ethics and Strategic Management

3.8 Planning for Business Continuity

3.9 Case Study

3.10 Summary

3.11 Glossary

3.12 Terminal Questions

3.13 Answers

3.14 References

3.1 Introduction

A common debate found in strategic management literature is whether policy

comes before strategy or vice versa and what is the interrelation between the

two. The present unit throws light on this by considering the definitions and

features of both. The definitions and role of tactics are also dealt with.

Different definitions of strategic management are also given for clearerunderstanding of the concept and process. The classification of management

functions into strategic and operational categories has been done. Four important

topics – strategic planning, strategic management, limitations of strategic

management and business ethics – have also been discussed.

An extension of strategic planning is business continuity planning. This is

a recent development in policy and strategic management. It essentially deals

with the damages due to a disaster to a business—natural or manmade.

Appropriate planning and strategies are required to handle such damages or

disasters. Implementation issues are also involved. All these have been

discussed in this unit.



3.2 Caselet

Birla Sun Life Insurance is one of the few Indian companies to have a fully

operational business continuity plan (BCP). It consists of a response plan

to restore and recover operations for critical processes within a

predetermined time after a disaster. The plan would ensure minimal impact

to the organization, its people, and most importantly, its customers.

The objective is to have a planned response in the event of any contingency,

ensuring recovery of critical activities within agreed time frames. The plans

would comply with various regulatory requirements and minimize the

potential business impact to the company. Additionally, it helps to create a

system that fosters continuous improvement of business continuity

management.

Highlights of the plan are as follows:

• Crisis Management and incident response

• Data back-up, data and system recovery as documented in the Disaster

recovery plan

• Recovery of all critical business functions and supporting systems

• Alternate recovery sites if primary location is unavailable

• Communication with customers, employees and other stakeholders

• Assurance to customers that they will continue to receive optimum

customer services at all times

Source: http://insurance.birlasunlife.com/Pages/Individual/About-Us/Business-

Continuity-Plan.aspx

Objectives

After studying this unit, you should be able to:

• Distinguish between policy, strategy and tactics

• Differentiate between strategic planning and strategic management

• Discuss the benefits and limitations of strategic management

• Explain the role of business ethics in strategic management

• Describe business continuity planning in terms of all aspects



3.3 Policy, Strategy, Tactics

We start with five definitions of strategy given by Mintzberg and Quinn (1991).

The five definitions or descriptions are: plan, ploy, pattern, position and

perspective. Strategy as a plan is a consciously intended course of action to

deal with a situation. These action plans may be general or specific. For example,

a strategy to gain competitive advantage in the market through differentiation is

a general strategy, but a strategy to offer low price and higher value for the

customer in a particular market may be considered a specific strategy. As a

ploy, strategy is a specific manoeuvre intended to outwit an opponent or a

competitor. Strategy as a pattern is visible in the consistency of action, intended

or unintended, that a company undertakes from time to time to strengthen its

position in the marketplace. Strategy as a position involves developing a match

between the organization and its external environment by reacting or responding

to change in the market environment. Tata Motors, responding to the emergence

of a Japanese light commercial vehicle (LCV) in the Indian market and introducing

its own LCV to become a market leader, is an example. Finally, strategy as a

perspective involves creating a shared view or perspective of the environment

by the management and other managers at different levels in the organization.

There are many such definitions of strategy in strategic management

literature. If we have to give one single definition of strategy, we would like to

quote the one given by Thompson and Strickland (2001):

A company’s strategy consists of the combination of competitive moves

and business approaches that managers employ to please customers, compete

successfully, and achieve organizational objectives.1

As the above definition suggests, and as mostly used or understood,

strategy is an ‘action plan’ or a ‘scheme of action’ or ‘design of execution’ of a

plan. Porter, one of the greatest exponents of strategy, has a slightly different

approach to the definition. He describes strategy as:

... developing and communicating the company’s unique position, making

trade-offs, and, forging fit among activities.2

For an organization, unique position indicates choice of activities which

are different from those of its competitors or performing similar activities in

different ways to exhibit its uniqueness.

Trade-off is required when some of the activities followed by a company

may not be compatible with each other or with organizational objectives or goals.



Forging or creating fit among different activities is necessary to ensure that

they relate to or reinforce each other.

Policy is different from strategy. ‘Policy’ is derived from the Greek word

‘politeia’, meaning‘ polity’, that is, the state and its citizens, and Latin polotis

meaning ‘polished’, that is, clear.

According to the New Webster Dictionary, ‘policy’ means the art or manner

of governing a nation or the principle on which any measure or course of action

is based. This definition implies that policy is a prescribed guideline for governing

actions of an organization with respect to given objectives. Kotler has given a

clear definition of policy:

Policies define how the company will deal with stakeholders, employees,

customers, suppliers, distributors and other important groups. Policies narrow

the range of individual discretions so that employees act consistently on important

issues.3

3.3.1 Different Features of Policy

On the basis of this definition, certain features of policy can be identified. These

are:

• Policies should follow from organizational objectives and should be

formulated in consistency with such objectives.

• Policies provide guidelines to managers/members in an organization for

deciding a course of action, and these limit their discretion or freedom in

choosing the course of action.

• Policy formulation is generally the function of senior or top management

of a company, and not the job of all managers.

• Policies are commonly expressed in qualitative terms in a general way.

Sometimes, policies can also be stated in a conditional or more specific

way.

• In any organization, a policy will remain in vogue for sometime till it is

reviewed, and a change in the policy is made or the policy is replaced by

a new one4. This means that policies do not change frequently.

To make the concept or meaning of policy clearer, some examples are given

below.

• A company will not consider any cost reduction measures if it means

compromising on the quality of its product(s).



• A company decides to grow only through retained earnings and not resort

to capital issue or market borrowing.

• A company will not consider adding any new products with less than 10

per cent return on investment.

• A company sells on cash terms and also on credit terms.

• A rental company charges a deposit for renting materials.

• A car company charges extra money for delivering the car to the buyer’s

premises.

• A company hires personnel with experience only.

• A company has guidelines on how to collect outstanding amounts from its

customers.

• A company responds to 50 per cent of customer enquiries within three

working days.

• A company does not question the return of goods by customers that were

purchased during last one month.

• A company does not give any discount on price.

• A company gives 10 per cent discount on price if payment is made in

cash.

3.3.2 Policy vs Strategy

The difference between policy and strategy should now be clear. Policy is broader

or more general—more in the form of guidelines or principles. Strategy is more

specific with reference to a particular situation, target or objective. Policy generally

comes first; strategy comes later, and, sometimes, follows from or is subject to

policy. Let us explain this with an example. A company wishes to achieve greater

cost efficiency. This is the objective. The company also has a policy of not

retrenching any of its existing employees. So, a strategy will be worked out,

which is subject to or consistent with this policy. The strategy may relate to

economies of scale or measures for increasing productivity or identifying and

eliminating wasteful expenditure in some area(s) of operation.

Some policy analysts and strategic thinkers do not make much distinction

between policy and strategy. According to them, the relationship between policy

and strategy is an evolutionary phenomenon. Over a period of time, because of

pressure of business and growing competition, business policies of many

companies evolved into specific strategic processes. The paradigm shift between



policy and strategy has been well enunciated by Hofer and others (1984). This

is shown below.

First Phase: Till the mid-1930s: (Ad hoc policy)

Ad hoc policy making necessitated by the expansion of American firms in terms

of product, markets and customers; and, the consequent need for replacing

informal controls by framing functional policies to guide managers.

Second Phase: 1930s and 1940s (Planned policy)

Planned policy formulation instead of ad hoc policy making and shift of emphasis

to integration of function areas caused by environmental changes.

Third Phase: 1960s (Strategy)

Rapid pace of environmental changes and increasing complexity of management

necessitating a critical look at business in relation to environment and the need

for strategic decisions.

Fourth Phase: 1980s and later (Strategic management)

Shift of focus to strategic processes and the responsibility of management in

resolving strategic issues.

The evolutionary aspect gives a good perspective to the difference between

policy and strategy.

3.3.3 Strategy and Tactics

Strategy and tactics are also different although they appear to be the same.

From an overall strategy, a number of sub-strategies follow. These are tactics.

Let us explain this. Suppose an industrial products company wants to increase

its market share. Different strategies can be used for this. The company may

decide to adopt the strategy of increasing customer focus or improving buyer

management (other strategies can relate to quality or price). During the

implementation of the overall customer focus strategy, day-to-day responses to

the market (or customer) constitute tactics. Tactics are used more in individual

cases — for example, giving a quantity discount to a particular customer, offering

a credit package to another customer, a special service to a third customer, etc.

The distinction between strategy and tactics is subtle, like the differentiation

between marketing and selling. Sometimes, the distinction between strategy

and tactics may depend on the level at which it is being used. For example, an

additional discount given to a large or important customer may be a strategic

decision for the salesperson, but for the VP (Marketing), this may be a tactical



decision. The distinction, or rather the relationship, between strategy and tactics

can be made clear in terms of five major factors or characteristics which relate

to both of them. These are given below:

1. Significance: Strategies have more significance or greater consequences

for an organization than tactics because strategies or strategic decisions

generally affect the entire organization or a significant part of the

organization. Tactics may affect only a particular supplier or vendor, a

particular sale or a customer.

2. Level of formulation or conduct: Because of their significance, strategies

are formulated at senior or top management level. Within an overall

strategy, tactics are employed by middle and lower levels of management

including salespersons in the field.

3. Information base: Since strategies are of major consequence to an

organization, these should be carefully worked out based on adequate

information about a company’s resource, operations, environment,

competitors, customers or some or all of these. Information requirements

for tactical decisions would be much less.

4. Objectivity/subjectivity: Strategies are generally worked out by teams

and not by individual managers (except the CEO sometimes.) This, along

with the fact that those are based on carefully analysed information/data,

renders enough objectivity to strategies or strategic decisions. Tactics, by

their nature, are more subjective—sometimes left to the discretion of

individual managers.

5. Periodicity or time horizon: Strategies are not made or changed too

frequently. It takes time for a strategy to fully work itself out and to determine

its effectiveness or success or failure.

Strategies, therefore, have larger periodicity or time frame. Strategies,

which are changed too frequently, are bad strategies. Tactics, on the other hand,

can change quite frequently. If we consider policy, strategy and tactics together,

it becomes clear that policy comes before strategy and strategy comes before

tactics. All the three concepts are closely interrelated and play vital roles in the

business or management process of a company. As a sequence or conceptual

chain in the management process, policy, strategy and tactics can be written

as:

Policy →→→→ Strategy →→→→ Tactics



Activity 1

Today, with increasing awareness about the threat to the environment, many

companies are adopting eco-friendly policies in various ways. Give an

example of a company that has changed its policies or adopted new policies

to make itself eco-friendly. Mention the specific steps taken.

Self-Assessment Questions

1. The five definitions of _______ given by Mintzberg and Quinn (1991) are

plan, ploy, pattern, position and perspective.

2. When some of the activities followed by a company may not be compatible

with each other or with organizational objectives or goals, ________ is

required.

3. Policy is the same as strategy. (True/False)

4. According to the New Webster Dictionary, ________ means the art or

manner of governing a nation or the principle on which any measure or

course of action is based.

5. Policy generally comes first; strategy comes later, and, sometimes, follows

from or is subject to policy. (True/False)

6. Strategy and tactics are also the same although they appear to be different.

(True/False)

3.4 Strategic Management

Like strategy, strategic management also has been defined differently by different

authors and strategy analysts. We give below three definitions of strategic

management, which together give completeness to the concept of strategic

management.

‘Strategic management is that set of decisions and actions which leads to

the development of an effective strategy or strategies to help achieve corporate

objectives.5’



‘Strategic management is defined as the set of decisions and actions in

formulation and implementation of strategies designed to achieve the objectives

of an organization:’6

‘Strategic management is primarily concerned with relating the organization

to its environment, formulating strategies to adapt to that environment, and,

assuming that implementation of strategies takes place.’7

All the management functions of a company can be broadly classified

into two categories: strategic and operational. Strategic functions are performed

more at the senior and top management level, and operational functions are

discharged more by middle and lower management levels. In other words, it

can be said that, as the level of management moves up, the managers perform

more strategic functions and less operational functions. Also, in any company,

operational functions constitute a higher percentage of total management

functions than strategic functions (Figure 3.1).

Level ofmanagement

Top

Middle

Supervisory

Strategicorientation

Management function Nature of function

Broad and coreative

Somewhat creative

Operationalorientation

Figure 3.1 Nature of Functions at Different Management Levels

Operational functions or operational management, as the name implies,

is concerned with routine matters of day-to-day management like efficient

production of goods, management of a sales team or sales force, monitoring of

financial performance, etc. Strategic management would be concerned with,

say, devising or innovating methods for improving financial performance of the

company. The major differences between strategic management and operational

management are shown in Table 3.1.



Table 3.1 Characteristics of Strategic Management and Operational Management

Strategic management Operational management

Higher level Lower level

Innovative Routinized

Imprecise More precise

Complex Less complex/simple

Organization–wide Operationally specific

Consequential Task driven

Result driven Productivity driven

Long-term implication Short-term/immediate implication

Strategic management consists of three distinct steps or stages. These

are: strategy formulation, strategy implementation and evaluation and control.

In sequential order, these three stages may be shown as

Strategy formulation→→→→Strategy implementation→→→→Evaluation and control

Some call these three the basic elements of strategic management. These

three elements can be considered individually, but, they are closely interrelated

and must be integrated in the total management process.


7. All the management functions of a company can be broadly classified

into two categories __________and _________.

8. Strategic functions are performed more at the senior and top management

level, while operational functions are discharged more by _______

management levels.

9. Strategic management consists of three distinct steps or stages

formulation, strategy implementation, and evaluation and control.

(True/False)

10. Operational functions or operational management, as the name implies,

is concerned with routine matters of day-to-day management. (True/False)



3.5 Strategic Planning and Strategic Management

Plan or planning should precede action. And, strategic planning should precede

strategic management. Strategic planning (also called corporate planning)

provides the framework (some call it a tool) for all major decisions of an

enterprise—decisions on products, markets, investments and organizational

structure. In a successful organization, strategic planning or strategic planning

division acts as the nerve centre of business opportunities and growth. It also

acts as a restraint or defence mechanism that helps an organization foresee

and avoid major mistakes in product, market, or investment decisions.

A strategic plan, also called a corporate plan or perspective plan, is a

blueprint or document which incorporates details regarding different elements

of strategic management. This includes vision/mission, goals, organizational

appraisal, environmental analysis, resource allocation and the manner in which

an organization proposes to put the strategies into action. The concept and role

of strategic planning would be clear if we mention the major areas of strategic

planning in an organization. First, strategic planning is concerned with

environment or rather, the fit between the environment, the internal competencies

and business(es) of a company. Second, it is concerned with the portfolio of

businesses a company should have. More specifically, it is concerned with

changes—additions or deletions—in a company’s product-market postures.

Third, strategic planning is mostly concerned with the future or the long-term

dynamics of an organization rather than its day-to-day tasks or operations.

Fourth, strategic planning is concerned with growth—direction, pattern and timing

of growth. Fifth, strategy is the concern of strategic planning. Growth priorities

and choice of corporate strategy are also its concerns. Finally, strategic planning

is intended to suggest to an organization, measures or capabilities required to

face uncertainties to the extent possible.

All large organizations formulate strategic plans. In 1997, All India

Management Association (AlMA) conducted a study to find out about business

plans, strategies, techniques and tools adopted by various Indian companies.

The study results were published in Business Today. The study showed that 56

per cent of the total number of companies (160) surveyed had published strategy.

In terms of planning horizon, the period covered in the strategic plan was less

than 3 years by 44 per cent of the companies, 3–5 years by 40 per cent of the

companies and more than 5 years by 16 per cent. Analysed in terms of company

size, bigger companies planned for a longer period. For 45 per cent of the large



companies, the planning period was more than 5 years, but for 70 per cent of

the small companies, the period was less than 3 years.

A characteristic feature of the starting plans of many large Indian

companies is that the long-term planning horizons of these companies generally

coincide with the national planning period. This means that many of these

companies follow a five-year planning period which synchronizes with the 5-

year plans of the country. This is particularly true of public sector enterprises in

the core sector.

For example, companies like BHEL, SAIL, NTPC and NHPC have

formulated corporate plans which are linked to the national plans. The 5 year

planning period of these companies, however, is not a generalization. Corporate

plans of some of these companies are linked to the national plans, but, not

necessarily of exactly 5-year duration; the duration can be a multiple of 5 years.

For example, SAIL had prepared an ambitious corporate plan with a planning

horizon of 15 years (1985–2000). Such plans are more appropriately called

perspective plans.

Marico Industries, the maker of Parachute coconut oil, had prepared a

strategic business plan for the period, 1991–96. For the preparation of the plan,

a strategic planning team was formed consisting of six managers from different

functional areas/disciplines. The planning team made some forecasts about

the general macroeconomic environment during 1991–96 and how the Indian

economy would perform during the period in terms of aggregate demand,

technology development and availability of raw materials. In addition to these,

the company had considered other environmental factors also. Based on an

analysis of the major strengths and weaknesses of the company and the

environmental factors (opportunities and threats), a detailed SWOT analysis

(discussed later in Unit 6) of the company was undertaken. The objective of

SWOT analysis was to identify growth and expansion possibilities in existing

and new products/businesses. These were finally translated into projected

volumes, turnover and profitability.

Once a strategic plan is prepared, the same is submitted to the senior

management/top management for their consideration and approval. In Marico

Industries also, the strategic business plan prepared by the planning group was

submitted to the senior management and finally to the top management (CEO).

Deliberations took place at different levels and the business plan was finalized.

This became more like an annual plan which was to be revised and updated

every year during the reference period (1991–96) as per the strategic business



plan. Marico’s target was to increase its turnover to ̀ 300 crore by 1995–96. The

business plan also stipulated that Marico should add a new product to its portfolio

every year and seek technology tie-up for introduction of new products.

Strategic planning and strategic management are intimately related to

each other. Where strategic planning ends, strategic management takes over;

but, both are complementary to each other. They form vital links in an integrated

chain in corporate management. Both are continuous processes. Strategic

management may be more continuous, because it involves implementation and

monitoring also.


11. A ________is a blueprint or document which incorporates details regarding

different elements of strategic management.

12. Strategic planning is concerned with environment or rather, the fit between

the environment, the internal competencies and business(es) of a

company. (True/False)

3.6 Benefits of Strategic Management

An organization can derive many benefits from strategic management. Strategic

management allows an organization to be more proactive than reactive in shaping

its own future. It allows an organization to initiate and influence rather than just

respond to activities or situations; and, this enables the organization to exercise

control over its present activities and give directions to growth and development.

Small business owners, CEOs and managers of many profit and non-profit

organizations have recognized the benefits of strategic management. The

benefits of strategic management can be both financial and non-financial.

Different research studies indicate that organizations using strategic

management are more profitable and successful than those which do not.8

Companies using strategic management techniques show significant

improvement in productivity, sales and profitability compared to the ones without

systematic planning. High-performing companies do more systematic planning

to prepare for future changes in the environment—both internal and external.

Companies with properly organized planning system and strategic management

generally show superior long-term performance relative to the industry average.



High-performing companies usually have more informed decision-making

system with good anticipation of both short-term and long-term consequences.

Companies, which perform poorly, often remain busy in activities that are

shortsighted and do not reflect good forecasting of future conditions. Planners

of low-performing organizations are often preoccupied with resolving internal

problems and conflicts and meeting routine or paper deadlines. They tend to

underestimate their competitors’ strengths and overestimate their own strengths

overlooking the weaknesses. They often attribute their poor financial performance

to uncontrollable factors such as a stagnant economy, poor industrial climate,

technological change and domestic or foreign competition.

Reports indicate that more than 1,00,000 businesses in the US fail annually

resulting in substantial financial losses. These business failures include

bankruptcies, foreclosures and liquidations. Although many factors contribute

to business failure, strategic planning and management can help in the prevention

of failures in many cases by anticipating situations or developments and

recommending or taking appropriate timely actions.

In addition to the financial benefits, companies can derive a number of

non-financial benefits from strategic management such as better awareness of

external threats, clearer understanding of competitors’ strategies, reduced

resistance to change, better analysis of performance-reward relationship, etc.

Strategic management may renew confidence in the current business strategy

or focus on the need for corrective actions. It helps managers to view change

as an opportunity rather than threat.

Greenley (1986) has analysed various non-financial benefits of strategic

management. He has enunciated the benefits of strategic management as given

below:

• It provides for an objective view of management problems.

• It allows for identification, prioritization and exploitation of opportunities.

• It allows for more effective allocation of time and resources to identified

opportunities.

• It provides a framework for improved coordination and control of activities.

• It minimizes the effects of adverse conditions and changes.

• It scans resources and time to be devoted to correcting erroneous or ad

hoc decisions.

• It enables major decisions to support established objectives and priorities

better.



• It provides a framework for improved coordination and control of activities.

• It helps to integrate the behaviour of individuals into a total effect.

• It provides a cooperative and integrated approach to tackling problems

and opportunities.

• It creates a framework for internal communication among managers.

• It encourages forward thinking.

• It imparts a degree of discipline, formality and positiveness to the

management of a business.

• It encourages a favourable attitude towards change.


13. Strategic management allows an organization to be more _____ than

reactive in shaping its own future.

14. The benefits of strategic management are purely financial. (True/False)

3.7 Business Ethics and Strategic Management

Every company or business has moral or ethical responsibility towards its

shareholders. Therefore, strategic management should be ethical and socially

responsible. To be ethical and socially responsible does not mean satisfying

only legal requirements. It also signifies going beyond the law and discharging

responsibilities to the stakeholders and the society as a whole. The strategic

management team should display a high level of integrity and should evolve

right and responsible plans and actions to implement the plan. For example,

the strategists may take the shareholders’ interest into consideration and try to

give them adequate returns on investment. But, at the same time, they should

also take into account the concern of the employees and protect or promote

their interests. This also implies that there should be focus on transparency.

Almost all strategy formulations, implementation and evaluation decisions

have ethical implications. Strategists are responsible for developing,

communicating and also enforcing the code of business conduct or ethics for

their organization. The responsibility for ethical conduct and behaviour, should

not, however, rest only with the strategists. It should be the responsibility of all

managers. Managers, particularly senior managers, hold positions which enable

them to influence and educate many others in the organization. This makes



managers at different levels responsible for developing and practising ethical

decision making and management. In other words, ethical values and standards

should be an integral part of any corporate functioning. For example, Citicorp

has developed a business ethics game, called ‘The Work Ethic’, which is played

by 40,000 employees in 45 countries.9 The objective of the game is to create

and sustain an ethical culture across the organization. The strategists can be

and should be the focal point of this culture.

Explosion of the Internet and its dominance in the workplace has given

rise to many ethical issues in many organizations today. Studies like the E-

Commerce Perspective focus on the business ethics issues related to the

Internet. Millions of computer users are worried about the privacy and security

on the Internet. Given the global nature of Internet and e-commerce, corporate

planners and strategists have to continually strive for ensuring privacy and

security of the Internet as a strategic management tool.

We will discuss more about corporate culture, values and ethics in Unit 4

with respect to corporate governance and, also, in Unit 15 with particular

reference to implementation of corporate strategy.

Activity 2

Give an example of business ethics practised by a company and write a

report on it.


15. Every company or business has _______ responsibility towards its

shareholders.

16. Almost all strategy formulations, implementation and evaluation decisions

have ethical implications. (True/False)

3.8 Planning for Business Continuity

Businesses need to be planned not only for today, but also for tomorrow, that is,

for the future. This implies business continuity and the need for sustainability.

Sustainability requires understanding and analyzing the environment. Besides

business fluctuations or business cycles, business interruptions occur because

of natural disasters like floods, earthquakes, cyclones, etc. To safeguard against

such threats or disasters, planning for business continuity is essential.



3.8.1 What is Business Continuity Planning?

Business continuity planning means proactively working out a means or method

of preventing or mitigating the consequences of a disaster—natural or man-

made (sabotage or terrorism) – and managing it to limit to the level or degree

that a business unit can afford.

3.8.2 Need or Importance of Business Continuity Planning (BCP)

As indicated in the definition, businesses today can be exposed to different

types of threats – natural or man-made. Major threats are:

• Natural disasters such as floods or earthquakes or accidents

• Man-made threats like sabotage or terrorism

• Financial crisis or disaster can be partly man-made and partly due to

environmental factors.

BCP prepares companies to prevent or respond to such situations so that

the damages or losses are minimized and the business or company survives.

Thus, BCP plays a critical role in a business—its survival and sustainability.

3.8.3 Business Impact Analysis

Business impact analysis is the process of identifying major functions in an

organization which have impacts of different degrees on the business of the

organization. The analysis is usually done for each major function to determine

its criticality for the business. This is done through impact questions. Relevant

impact questions are:

• How important is the function in terms of business policy of the company?

• What is the role or criticality of the function in the business strategy of the

company?

• How much the rest of the functions would be affected by absence of the

function – the operational impact?

• How much may be the revenue loss for the company in the absence of

the function —the financial impact?

• How long can the function be in operative without causing any major

impact or losses?

• Whether the absence or in operation of the function affects market or

industry ranking of the company – loss of competitiveness?



• Is the function critical for relationships with customers – loss of customer

confidence or satisfaction?

• Can the absence of the function lead to loss of future sales or revenue –

future growth problem?

The answers to these questions determine the magnitude of impact of a

particular function. In terms of importance or criticality, business functions can

be classified into four categories. These are:

(i) Critical functions: Functions, if interrupted or unavailable for some time,

can put the business in complete disorder, and, may result in heavy losses.

(ii) Essential functions: Functions, whose absence or interruptions, would

badly affect the regular functioning of the organization.

(iii) Necessary functions: Functions without which an organization can

continue functioning, but its operational efficiency would be affected.

(iv) Desirable functions: The absence of these functions does not affect the

operational effectiveness, but the presence of these functions would be

beneficial to the organization.

Impact analysis enables an organization to rank or prioritize business

functions, and determine the order or priority in which those should be developed

or maintained. This also indicate recovery priorities, i.e., the speed or priority

with which a function should be restored or recovered once the function is

disturbed, interrupted or suspended.

3.8.4 Strategies for Business Continuity Planning10

Because of the possibility of different kinds of impacts, and depending on the

nature of damage or disaster, appropriate strategies should be developed and

used to deal with particular situations. Five different strategies should be

developed for five different situations/actions. These are:

1. Prevention

2. Response

3. Resumption

4. Recovery

5. Restoration



1. Prevention

Conventionally, prevention is the best strategy; this means taking steps or actions

to prevent or minimize the chances of occurring of a disaster. Companies can

adopt many preventive control measures as safeguards. Common preventive

control measures are:

(a) Security controls: These involve controls by setting up barriers to protect

the site and prevent unauthorized entry into the premises. This means, in

other words, manned surveillance at the location.

(b) Infrastructure controls: These include appropriate infrastructural facilities

like UPS/back-up power, smoke/fire detectors, fire extinguishers, weather

forecasting systems , etc.

(c) Personnel controls: Skilled/trained personnel are posted to man sensitive

zones where key or critical resources may be located.

(d) Software controls: These involve modern methods of controls through

computerized systems or software. These include authentication,

encryption, firewall, intrusion detection systems, etc.

2. Response

Prevention is a pre-emptive measure; response is a reactive step. If prevention

is not possible, fast response is the next best alternative strategy. After an

interruption or damage has taken place, the BCP team should immediately

inform the management and the Damage Assessment Team. Two other teams

would also be involved: the Technical Team and the Operations Team.

The Damage Assessment Team would assess the nature and magnitude

of the damage. More specifically, the team should investigate into:

• The cause of disruption or damage

• The scope for preventing additional damage

• What can be salvaged

• What repairs, restorations and replacements are required

Based on the report of the Damage Assessment Team, the Technical

Team and Operations Team should get into action. The Technical Team is the

key decision maker for further actions of the BCP and the Operations Team

executes the actual damage control operations of BCP.



3. Resumption

In this, the strategy is for resumption of normal or pre-damage activities of the

organization. Activities now shift to the command centre. The command centre

is different from the location of the normal business activity. Both resumption

and recovery actions are planned and coordinated from the command centre.

The centre should have required communication facilities, systems and

equipments for effective functioning of the BCP/Technical team.

The first decision to be taken by the Technical Team is whether important

or critical business operations can be resumed at the present site or those have

to move to an alternative location. If the present site is badly damaged and, is

not accessible for immediate use, operations may have to move to an alternative

site. Different kinds or types of alternatives may be available based on

infrastructure and facilities and the Technical Team has to choose the most

appropriate site.

4. Recovery

Along with the resumption of critical operations either at the original site or an

alternative location, the recovery process also begins. Recovery essentially

means reinstallation of the operating and control system. Necessary critical

operations are restored. As this happens, information restoration from back-up

tapes or offsite storage also begins. As soon as information/data restoration is

complete, critical business functions can resume.

5. Restoration

Restoration means restoration of the original site for normal functioning. The

restoration process is initiated simultaneously with the recovery work. In fact,

recovery and restoration teams are often common.

The five strategies mentioned above have to be planned and executed

within a time span usually decided by the top management in consultation with

the BCP team. The time span or duration of the process would depend on the

magnitude of the damage or disaster, recovery/restoration goals and the speed

with which different teams " BCP, Technical and Operational " can function.

3.8.5 Developing a Business Continuity Plan and Implementation

Plans and strategies work together. A plan is also essential for implementation

of a strategy or strategies. A separate plan can be made for each of the five

strategies, i.e., prevention, response, resumption, recovery and restoration or

an integrated plan can be prepared incorporating or dealing with all the strategies.



In either case, a plan would have four important aspects or elements.

These are:

(a) Objective: What exactly is to be done or achieved

(b) Assumptions: These indicate availability of back-up services, trained

team to handle operations, vendors, etc.

(c) Team: The BCP team entrusted with the project — their sub-teams roles

and responsibilities should be specified

(d) Scope and limitations: The role of the BCP team should be clearly

defined. Any limitations in their functioning, including resources, are to be

mentioned

3.8.6 Implementation

Implementation of business continuity plans are mostly technology driven.

Implementation involves development and testing of IT system or solution. The

software and/or hardware elements are built into the systems. Implementation

of the mechanical and physical processes of restoration/recovery also take place

simultaneously. In fact, technology and other systems have to be harmonized

for proper implementation of a business continuity plan. During continuity

planning and implementation, care should also be takes to ensure that the

organization’s business process does not come to a complete halt when there

is a disruption of the normal process flow. This is ensured through planning or

building ‘redundancy’, i.e., incorporating back-up service elements which may

be redundant during normal course of business.

An example will make this clear. A bank may be selling fixed deposits to

its account holders or customers through net banking. But, the bank can also

keep phone banking facility ready as a standby so that this can be availed of by

the customers if net services break down. There can also be emergency phone

numbers which customers can use in case of failure of normal communication

services.

3.8.7 Technology versus Business

Business continuity planning and implementation predominantly involve

technology—IT and software systems. But, it must not be forgotten that

technology is used for protection or restoration of business, and, therefore,

focus on business has to be simultaneous.

Also, operational aspects of BCP involves technology, but, technology is

not all or sufficient. Other knowledge areas or activities are equally important.



These include risk management, crisis management, impact analysis, cost-

benefit analysis, storage management, network management, recovery planning,

coordination and communication.11 This implies that business continuity planning

teams should be cross-functional or multi disciplinary so that all required

knowledge inputs or expertise are available. Organizations should develop and

engage such multi disciplinary teams for successful business continuity planning

and its implementation.


17. To safeguard against natural or man-made disasters, ________is

essential.

18. ________is a pre-emptive measure, while _____response is a reactive

step.

3.9 Case Study

Oriental Insurance Company: Growth With Stability*

Oriental Insurance Co. (OIC), a subsidiary of General Insurance Corporation

(GIC), is one of the oldest (established in 1947) insurance companies in

India. OIC conducts all forms of non-life insurance businesses. These

businesses range from small rural insurance covers to big national projects.

OIC’s corporate policy is to contribute to the socioeconomic objectives of

the nation by being a vibrant and viable organization catering to the growing

insurance needs of the community.



Towards this end, the company will strive for effective management of

business operations.

With headquarters based in Delhi, OIC has 21 regional offices, 311 divisional

offices and 635 branch offices in various parts of India—metropolitan cities,

large, medium and small towns and some rural locations. The company

has overseas operations in Nepal, Kuwait and Dubai.

OIC is managed by a team of professionally qualified and experienced

managers. These managers have vast experience in conducting general

insurance business, both nationally and internationally. The company has

a dedicated project cell at headquarters and also major cities of India. A

special R&D team has been dedicated to work out special/innovative

insurance covers like stockbrokers’ policies, special package policies, etc.

OIC specializes in devising special covers for large projects like power

plants, steel plants, chemical plants and petrochemicals. It has a highly

technically qualified team of professionals to render high quality customer

service. The company has special reputation in the reinsurance market.

OIC follows a strategy of growth with stability. The company maintains a

steady growth in its premium income as well as investment income. During

the last 10 years, both premium income and investment income increased

by 8–10 per cent. Even capital and reserve funds grew by about the same

percentage.

OIC generally follows a policy/strategy of concentration in the existing

products and markets, i.e., on its popular policies which are major revenue

earners. The company also adapts its policies/strategies to emerging

environmental and market changes to remain contemporary.

* Based on S Lomash and P K Mishra, Business Policy and Strategic Management

(New Delhi: Vikas Publishing House, 2009), 369–71 (Case IX).

3.10 Summary

Let us recapitulate the important concepts discussed in this unit:

• Business policy or policy is different from strategy and strategy is different

from tactics. If we consider policy, strategy and tactics together, policy

comes before strategy and strategy comes before tactics as a sequence

or conceptual chain in the management process: Policy→Strategy→

Tactics. But, all the three concepts are closely interrelated.



• Plan or planning should precede action and strategic planning should

precede strategic management. Strategic planning—also called corporate

planning—provides the framework (some call it a tool) for all major

decisions of an enterprise—decisions on products, markets, investment

and organizational structure.

• Benefits of strategic management are many—both financial and non-

financial. Studies have shown that organizations using strategic

management are more profitable and successful than those which do

not.

• Strategic management has its limitations also—analysing a complex

environment; plans, frameworks and systems mean rigidity; limitation in

implementation; and inadequate appreciation by the management.

• Every company or business has moral or ethical responsibility towards its

shareholders. Therefore, strategic management should be ethical and

socially responsible.

• Business continuity planning means proactively working out a means or

method of preventing or mitigating the consequences of a disaster – natural

or man-made (sabotage or terrorism) – and managing it to limit to the

level or degree that a business unit can afford.

3.11 Glossary

• Business continuity planning: Proactively working out a means or

method of preventing or mitigating the consequences of a disaster – natural

or man-made (sabotage or terrorism) – and managing it to limit to the

level or degree that a business unit can afford.

• Policy: The art or manner of governing a nation or the principle on which

any measure or course of action is based.

• Strategic management: Set of decisions and actions which leads to the

development of a corporate organization.

• Strategic plan (also called a corporate plan or perspective plan): A

blueprint or document

• Strategy: The combination of competitive moves and business

approaches that managers employ to please customers, compete

successfully, and achieve organizational objectives which incorporates

details regarding different elements of strategic management.



3.12 Terminal Questions

1. Explain the difference between policy, strategy and tactics.

2. Explain strategic management. How is it different from operations

management?

3. Specify the interrelationship between strategic planning and strategic

management. Which comes first?

4. Mention the major benefits of strategic management; state in terms of

both financial and non-financial benefits.

5. Does strategic management have any ethical implications? If so, explain

them.

6. What is business continuity planning? Explain in terms of strategies and

implementation.

3.13 Answers

Answers to Self-Assessment Questions

1. Strategy

2. Trade-off

3. False

4. ‘policy’

5. True

6. False

7. Strategic, operational

8. middle and lower

9. True

10. True

11. strategic plan

12. True

13. Proactive

14. False



17. moral or ethical

18. True

19. Business continuity planning

20. Prevention, response

Answers to Terminal Questions

1. Policy is broader or more general—more in the form of guidelines or

principles. Refer to Section 3.3 for further details.

2. All the management functions of a company can be broadly classified

into two categories—strategic and operational. Refer to Section 3.4 for

further details.

3. Plan or planning should precede action. And, strategic planning should

precede strategic management. Refer to Section 3.5 for further details.

4. An organization can derive many benefits from strategic management.

Refer to Section 3.6 for further details.

5. Every company or business has moral or ethical responsibility towards its

shareholders. Therefore, strategic management should be ethical and

socially responsible. Refer to Section 3.7 for further details.

6. Businesses need to be planned not only for today , but also for tomorrow,

that is, for the future. This implies business continuity and the need for

sustainability. Refer to Section 3.8 for further details.

3.14 References

1. Glueck, W F. 1980. Business Policy and Strategic Management. New

York: McGraw-Hill.

2. Hofer, C A, E R Murray, R A Pitts, and Ram Charan. 1984. Strategic

Management—A Casebook in Policy and Planning. 2nd ed. Minnesota:

West Publishing.

3. Mintzburg, H, and J B Quinn. 1991. The Strategy Process: Concepts,

Contests and Cases. New Jersey: Prentice Hall.

4. Ramesh, P, Business Continuity Planning, Technology Review 2002-04,

Tata Consultancy Services, July 2002.



5. Steiner, G A, J B Miner, and E R Gray. 1982, Management Policy and

Strategy. New York: Macmillan.

6. Thompson, A A, Jr, and A J Strickland. 2001. Strategic Management:

Concepts and Cases. New Delhi: Tata McGraw-Hill.

Endnotes

1 A A Thompson Jr, and A J, Strickland, Strategic Management: Concepts and Cases

(New Delhi: Tata McGraw-Hill, 2001) 3.2 M E Porter, ‘What is strategy, ’ Harvard Business Review (November –December,

1996), 61 –78.3 P Kotler, Marketing Management (New Delhi: Prentice Hall of India, 2000), 66.4 A F Alkhafaji, Strategic Management (New York: The Haworth Press, 2003), 8.

5 W F Glueck, Business Policy and Strategic Management (New York: McGraw-Hill, 1980),

6.6 J A Pearce, and R B Robinson, Strategic Management (Singapore: McGraw-Hill, 2000),

6.7 G A Steiner, J B Miner, and E R Gray, Management Policy and Strategy (New York:

Macmillan, 1982), 25.8 C C Miller, and L B Cardinal, ‘Strategic Planning and Firm Performance: A Synthesis of

More than Two Decades of Research, ’ Academy of Management Journal 6, no. 27

(1994); M Peel, and J Bridge, ‘How Planning and Capital Budgeting Improve SME

Performance, ’ Long Range Planning (October, 1998); J Smith, ‘Strategies for Start-

ups,’ Long Range Planning (October, 1998).9 F R David, Strategic Management (2003), 20.

10 This sub-section is based on P Ramesh, Business Continuity Planning , Technology

Review 2002 –04, Tata Consultancy Services, July 2002, pp. 5 –10.11 P Ramesh (2002), p. 37.

MB0052-SLM-Unit-03

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