book review of business policy and strategy

Book Review of Business Policy and Strategy: An Action Guide Submitted in partial fulfillment of B.S. in Business Administration Century University, New Mexico Grade = 95% {A} Business Policy and Strategy: An Action Guide, by Robert Murdick, R. Carl Moor and Richard H. Eckhouse, attempts to tie together the broad policies and interrelationships that exist among the many functional areas which undergraduate students typically study. The authors intend the text to supplement the typical case book and/or computer simulations used in teaching business strategy (ix). Situational analysis is presented, as is a structure for developing strategy. Practicality and real world experience is combined with educational theory to provide as complete a picture as possible of strategy in business. The authors have divided the text into 15 chapters with no further subdivisions. It is possible, however, to group the chapters into specific areas of study. For example, the first chapter, "Business Failure Business Success," examines why businesses fail, and provides the reason for continuing with the remainder of the text. The next two chapters focus on the "field of action," including the business environment and the business system. The fourth and fifth chapters introduce strategic management (chapter 4) and the struggle not only to survive, but to prosper using strategic management (chapter 5). Chapters Six through Nine address specific functional areas (marketing, accounting/finance, production, and engineering/research and development). Chapters 10 and 11 introduce the reader to the problems of managing human resources (chapter 10) and data processing resources (chapter 11). The last four chapters discuss the issues involved with analyzing business situations. Multinational business analysis is the subject of chapter 12, while chapter 13 turns the reader's attention to how to conduct an industry study. Chapters 14 and 15 focus on how to analyze a case and illustrations of case analysis, respectively. The text concludes with an appendix of symbols used by those who evaluate reports and a general index to topics within the book. The authors make good and frequent use of charts, graphs, forms and other graphic techniques to illustrate their points. Each chapter concludes with a selected bibliography that the student may use for additional research. The book is printed entirely in black ink; the use of color for key concepts would have enhanced the book's value as a teaching text. Visually, the book is crowded without much white space for readers to make notes. Key concepts could also have been separated from supporting text in a more clear manner. While each chapter has a summary, they do not have an introduction or a listing of key words of concepts that the student should learn as a result of studying each chapter. Such aids would make the book more valuable and enhance the learning experience of readers. Chapter 1 examines why some businesses fail and why others succeed. The first sentence in the book states exactly where the authors stand on the issue: "Businesses fail because managers fail" (1). The authors present a chart that illustrates how businesses large and small can both have "relatively short successful life spans" (1) Reasons for the ultimate failure are presented in this chart, and the authors go into greater detail in the text. Fundamentally, the authors find that managers in business are unable to determine what action to take, or are unable to implement the necessary action once they have identified it. The reasons for these shortcomings are many, but the authors find that managers may be unable to differentiate between problems and symptoms. To help their readers overcome this problem and successfully manage one or more businesses, Murdick, Moor and Eckhouse identify five points that they address in the remaining 14 chapters. One, they present the field of action in which managers must operate. Two, they describe common major problems that must be identified and solved in order for firms to prosper. Three, they present a framework for determining a unified sense of direction. Four, they give a brief account of policies and problems in the major functional areas of business. Five, they give detailed case and analysis tools to enhance the reader's ability to identify complex business problems. Chapter 1 concludes with a list of business failures and their causes of 1987, helping the student to understand the importance of strategic management in the success or failure of a company (4). In Chapter 2, the authors move to consider the field of action, or the arena in which business executives and businesses operate. Chapters 2 and 3 focus on this field of action, with chapter 2 looking at the environment of the business system. Murdick, Moor and Eckhouse suggest that a business has seven groups of stakeholders, each of which provides some level of legitimacy to the organization: customers, shareholders, general public, suppliers, competitors, governments and special interest groups (5). It is important that the business act in a manner that is morally responsible toward these groups. However, any one of these groups may be powerful enough to force a business to close, or to support its operation even during general business downturns. Because this field of action is dynamic, it is up to the managers of individual organizations to determine the proper level of responsibility toward each of these groups of stakeholders. Murdick, Moor and Eckhouse also suggest that monitoring and forecasting the business environment is vital to the success of a business. The authors divide the environment into two distinct parts: remote and immediate. The remote environment consists of such aspects as: global economics, political factors, social and demographic features, technology and physical resources. The immediate environment comprises such areas as: customers and prospects, competitors, the labor pool, suppliers, creditors and government agencies (7). To those business managers who are of the opinion that they cannot forecast the future because they have problems in the present, the authors counter that by being mindful of what the future may hold, the managers can minimize their problems in the present. This chapter concludes with a discussion of opportunities and threats. Murdick, Moor and Eckhouse suggest that opportunities, like the environment itself, can be divided into immediate and long-term for the purpose of analysis. Immediate opportunities include new applications of existing products, new processes in manufacturing, and new and improved customer service (8). Threats that pose immediate problems may also pose extremely fragile environmental situations. Avoiding environmental threats requires long- term planning and anticipation of potential problems. Environmental threats may include competitors, changes in customer demand, legislation, inflation, recession and technological breakthroughs. In addition to opportunities and threats, which help managers attain long-term and short-term business success, managers must also be aware of constraints. Constraints may require careful and thoughtful analysis in order to realize their full implications. Legal constraints are often obvious, but political constraints may be nebulous. Some constraints to growth are identified by Murdick, Moor and Eckhouse as lack of natural resources, declining productivity and deteriorating transportation systems (13). In chapter 3, the authors turn their attention to the business system, which is the second field of action. Here, they suggest that the historically popular approach of studying functional areas separately without understanding their interrelationships proved short-sighted and the source of many business problems, and some spectacular failures. The discussion of the business system begins with the identification of general management. General managers are identified as individuals "responsible for a business system" (15). It is the general manager who is responsible for profit and loss and for long- term survival. It is up to the general manager to balance conflicting objectives of subsystems, differing value systems of internal and external influences, opposing views of priorities and emphasis and conflicting proposals for criteria in all areas. The general manager develops the concept of the enterprise, guides the development of a set of visions, goals, values and policies, and conducts the strategic management tasks of renewal and growth (16). Murdick, Moor and Eckhouse suggest that organization provides the structure of the business system. Some organizational aspects are dictated by law; sole proprietorships, partnerships, limited partnerships, corporations and joint-ventures are examples of these. While these are the legal forms of organization a business may have, the law does not dictate which form is appropriate for a given business. Determining the legal type of organization requires careful analysis. As businesses change and strategies are modified, managers must be willing to undertake changes in the legal organization, as well, in order to maintain the most competitive and advantageous organizational structure. Murdick, Moor and Eckhouse identify small firms as those that are guided by a single individual, or by two partners. Imposing the tight, formal structure of medium and large companies on small companies can be death for the smaller firm, according to the authors (18). Instead, small companies work best with loose organizational structures that allow for maximum creativity. While managers of small firms that are growing into medium-sized firms are well advised to avoid hiring managers from other medium-sized firms, and instead, seek to teach the individuals who are already associated with the company the skills they will need in the now-larger organization. In all cases, the goal is to keep the owner-manager occupied in the areas in which the company benefits the most from his expertise. This may mean delegating some responsibilities in order to allow the owner-manager time to focus on strategic planning. Turning their attention to medium-sized firms, Murdick, Moor and Eckhouse first acknowledge that there are no clear-cut rules for differentiating between medium and large companies, except through examining assets, sales, equity and number of employees. They suggest that medium-sized firms can be differentiated from some companies in that medium-sized companies require a functional manager for each functional area. Small companies may have one manager for several functional areas. Full-time specialists, such as lawyers or treasurer, may also be found in medium-sized firms, but not in small ones. Medium-sized companies are best served by "flat" organizational charts; that is, few hierarchical levels, with functional managers reporting directly to the president. Murdick, Moor and Eckhouse recommend a span of management of at least six people without crossover responsibilities (22-23). Large companies usually have complex organizational structures that may have any one of several hundred forms. Large companies are characterized by "staff" and "line" personnel, with staff personnel providing support services to line personnel, who are responsible for the company's products or services. There are increased layers of management in large companies when compared to medium and small firms, and there are often subdivisions or subsidiaries that are grouped under one large parent organization. Organizations may follow one of the six "pure" forms identified by the authors: people, product, geographic area, process, function or phase of activity (33). Large companies are likely to combine several of these forms. Organizational policies (as opposed to personnel and staffing policies), identify information such as the principles to be followed in organizing the parts of the company, relationships among major organizational components, guidelines for position titles, functional descriptions of components and spans of management. The authors end this chapter with a discussion of decision problems. Such problems are identified as situations that require action based on executive decision to pursue a given course of action (41) Chapter 4 formally introduces and explores a concept that has been central in the text so far, but which the authors have not defined until now: strategic management. Murdick, Moor and Eckhouse identify seven major tasks that form the strategic management process: formulation of the philosophy of management, corporate purpose and goals; environmental analysis and forecast, internal analysis of strengths and weaknesses; formulation of strategy; evaluation of strategy; implementation of strategy; and, strategic control (45). The philosophy of management is concerned with what the firm strives to achieve in the long-term, not with immediate objectives. Environmental analysis and forecast and internal analysis have already been discussed in previous chapters. Developing strategy is, along with implementing strategy, one of the most complex tasks a firm undertakes. The authors define strategy as 1) a statement of strategic objectives of the organization, 2) courses of action to be taken in moving the organization from its present position to a position defined by its principal strategic objectives, and 3) policies and standards of conduct pursued for one long-range cycle of the organization (46). When companies do not understand strategic management, there is a notable shift among various tactical strategies. Such companies lack procedures for developing strategies and plans, and may be carrying subsidiaries or products that are no longer money-makers. Companies lacking strategic management are likely to suffer a loss of market share and a deteriorating capital position. Top managers may strongly disagree about the direction the firm is taking, or should be taking. Finally, there is likely to be no long-term, written strategic plan for the organization, including strategic goals and the ways those goals will be reached (46-48). Murdick, Moor and Eckhouse identify a four-step process to help formulate strategic directions for business. One, top management must settle on the personality of the company through open and frank discussions. Two, analysis of the situation outside the company must be undertaken to see what opportunities and threats might be realized or overcome. Three, internal analysis is necessary to determine resource and capability. Four, the internal capabilities must be matched to the external opportunities (49). Murdick, Moor and Eckhouse also move to strategic planning and implementation, and suggest that planning is, in fact, the beginning of implementation. Strategic plans involve writing down what is to be done, when, how, and by whom. Such plans greatly enhance implementation by leaving few variables subject to chance. The authors end the chapter with a note of caution. They find that the best-made plans do no good unless they are implemented. Companies which may run efficiently may not be running according to their strategic plan. Total company control is necessary to long-term survival. They suggest that long-term plans include identification of Key Performance Areas (KPAS) and the monitoring system that will keep these areas on track with the strategic vision of top management (61). The authors include three appendices to this chapter, including key merger and acquisition terms, a discussion of value-based planning and a discussion of discounted cash flow valuation. In chapter 5, Murdick, Moor and Eckhouse take up the complex issue of survival and prosperity among firms. While they admit that new firms have the greatest risk of failure, they also point out that old, established firms (such as Packard Motors and Baldwin Locomotive) can also disappear from the business scene. In order to better understand why some firms survive while others fail, the authors look at small, medium and large firms. They also point out that there are many more causes for failure than can be covered in any one text, let alone any one chapter. Beginning with small firms, Murdick, Moor and Eckhouse suggest that the competitive edge that defines a company's survival be carefully analyzed. Small firms need to focus on facts rather than hunches and guesses. Owner-managers need to seek out qualified professional advice and take advantage of it. Growth for its own sake needs to be avoided, as does undercapitalization. Lack of cash planning and managerial problems also plague small companies. Medium and large companies are grouped together in the remainder of chapter 5 to examine why they succeed and fail. Here, the authors find that successful firms have written objectives and policies that cover all aspects of a company's operations, including its internal and external environment (92). Companies in this size category that fail almost always have no unified sense of direction (94). Failing companies may suffer inadequacy in one or more key functional areas, or have people problems that cannot be overcome. These companies may not have good controls, or may try to implement too many controls at one time. Finally, medium and large companies that fail to operate with an "international" mentality may well find themselves facing difficult times (100). Chapter 6 begins a four-part section on functional areas with a discussion of marketing. Here, Murdick, Moor and Eckhouse suggest that successful firms are characterized by everyone in the company being marketing-oriented (103). They also find that it is not enough for a company to understand the science of marketing; a company and its marketing staff must be able to understand the art, as well. Murdick, Moor and Eckhouse take a philosophical rather than mechanical approach to marketing in order to provide the reader with a better base of understanding that can be applied in the real world. The authors first present the idea of a "marketing concept," which they define as a philosophy that guides the attitude and behavior of each employee in the organization (104). Specific characteristics of the marketing concept include treating the customer as all- important, pinpointing a target market, gaining a competitive edge, and focusing on profits (105-106). Murdick, Moor and Eckhouse also attempt to identify the characteristics of good marketers. They find that good marketers are those who can identify the key factors associated with their business, foresee how those factors will behave in the future, and who can create outstanding strategies based on these factors. Good marketers satisfy a large number of customers at a high level of profit over a long period of time (at least ten years). Good marketers recognize that marketing is both an art and a science, and they make the best use of scientific information in order to enhance the art. When examining the marketing position of a company, it is necessary to analyze the marketing philosophy, policies, strategy and operations. Fundamentally, it is necessary to establish that a company is following its marketing concept. Broad marketing policies must be established. The marketing strategy of the company must be well defined within these broad policies. Finally, marketing operations must be carried out effectively and efficiently (109). Strategic marketing policies are developed by top managers working from top level marketing policies. Murdick, Moor and Eckhouse identify seven areas that may be covered by these strategic marketing policies: morality and public service, products, markets, profits, personal selling, customer relations and promotion (111) The authors then turn their attention to marketing policy and find that there are three policy options within marketing: expand sales into new classes of customers; increase penetration in existing market segments; avoid marketing innovations, but work to maintain present market share with product design and manufacturing innovations. Murdick, Moor and Eckhouse are also careful to discuss plans and tactics for keeping with the marketing concept and strategy. In suggesting ways to analyze the marketing of an organization, the authors suggest that companies strive to establish and maintain a competitive edge. Marketing research is of prime importance in order that the company base its direction on as much quantitative information as possible. Advertising and sales promotion policies must be considered in light of the company's customers, industry and other environmental factors. Personal selling must be taken into account. Distribution and pricing strategies must be reviewed and modified on a regular basis in order to keep the company operating at maximum efficiency. The authors conclude this chapter with a summary of the marketing mix as well as a summary of the pitfalls that may be symptomatic of companies experiencing marketing difficulty. Chapter 7, which focuses on the functional area of accounting and finance, is the longest chapter in the book; it is nearly twice as long as any other chapter. This illustrates the importance that the authors place on accounting and finance, and also the trepidation they believe most readers have when it comes to these subjects. The authors concentrate on the basic aspects of finance and accounting that can be learned quickly and that will bring the greatest benefit when taking a strategic approach to business. Three appendices provide review material for those readers who feel they are lacking in some area. The appendices cover business arithmetic, break-even analysis and definitions of accounting terms. Having recognized that there is hesitation and a general lack of comfort among business when confronted with accounting and finance, Murdick, Moor and Eckhouse discuss why it is important to understand financial analysis. Chief among these reasons is the idea that financial analysis is the most direct way to point out that a company may be experiencing difficulty. Financial analysis can be used to establish that there is a problem, though it may not always establish what the root cause of the problem is. Despite the fact that the authors consider financial analysis to be key in understanding companies, they are also careful to point out the limitations of this type of analysis. For example, there can be a tendency to use financial analysis to focus on the past, rather than anticipating what the historical figures may indicate about the future. There is also an inherent danger in expecting past trends to accurately predict future trends. Technological changes, changes in consumer demand and other environmental factors that are outside the realm of financial analysis can be overlooked if there is too much emphasis on historical financial performance. High technology companies or those in rapidly expanding industries may have financial figures that are too uneven to provide an accurate picture of how the company is actually performing. There is also the possibility that figures may not (whether intentionally or not), accurately reflect the true position of the company. Finally, the authors suggest that financial analysis is an art that is mastered by all too few people for it to be considered the ultimate analysis tool. Having presented this rather lengthy discussion of the limitations of financial analysis, the authors then counter with an equally lengthy discussion of the advantages of using financial analysis. Foremost among these is the idea that trends do exist and financial analysis is one of the most effective methods for spotting them. Financial analysis can also spotlight symptoms of problems (although not the underlying cause, necessarily). Companies seeking outside capital to infuse into the business find that potential investors consider financial analysis key to their decision-making process; inside managers would do well to keep a financial picture of the company in mind to prevent unpleasant surprises. Since financial analysis is quantitative, it can help point up where problems exist, rather than where managers may think they exist. Finally, and perhaps most importantly, the authors [...]... that the reader consider four questions when examining the profit and loss statement One, what is the sales trend? Two, what is the trend of cost of goods sold as a percentage of sales? Three, what's the trend of operating expenses as a percentage of sales? Four, what is the trend in profits? If the trend in sales is up, but the trend in profits is down, the company is very likely already in serious... to increasing volume; determining the advisability of borrowing for capital improvements to increase capacity; and when evaluating office automation The first step in break-even analysis, according to Murdick, Moor and Eckhouse, is dividing costs into fixed (constant) and variable Murdick, Moor and Eckhouse give several examples of inventory valuation and the effect that changing valuation methods may... courses of action quantitatively provides additional tools to managers to make strategic decisions The authors then provide information on how readers can obtain financial information General sources, such as Moody's and Standard & Poor's are discussed as are ratio reports Ratios are of particular importance to the authors; they devote four pages of a chart to figuring ratios and a lengthy discussion of. .. areas to examine: profitability, liquidity, leverage and turnover They also stress the importance of considering any other pertinent questions that must be considered for the specific company and industry Murdick, Moor and Eckhouse consider break-even analysis to be important when: deciding whether to increase sales or advertising expenses to increase volume; weighing the relative merits of decreasing prices... Murdick, Moor and Eckhouse favor comparing performance across departments within a single organization, and across companies within a single industry in order to arrive at the most accurate comparison They note that when performing industry comparisons, it is important to compare like industries, and like companies within the industries Selecting the wrong category can render the value of the ratio... establishes how many funds are needed for projects and the possible sources of those funds The authors then discuss budgets, which they consider to be of prime importance when evaluating a company's managerial performance Budgets assist in planning, but also indicate how the firm has performed in the past They indicate how well the company expects to do, and how well the company has predicted their past... can also be used to spot difficulties and problem areas in the present, as well as areas that became problems in the past Having presented a wealth of information to the reader on finance and accounting, the authors end the chapter with a lengthy chart designed to help the reader use his or her newly acquired skills They also emphasize that it is through repeated and frequent analysis that the reader... likely to improve his or her financial analysis skills, and the tools presented in the three appendices to this chapter are designed to assist in that improvement Chapter 8 is concerned with the functional area of production The authors begin this chapter by stating that the concepts they are putting forth with regard to production apply equally to businesses that produce tangible goods as well as that... the industries Selecting the wrong category can render the value of the ratio comparison null At this point, the authors shift their focus from finance to accounting, and discuss how accounting can help decision-makers Murdick, Moor and Eckhouse suggest that financial accounting should answer five basic questions One, how is the company doing overall? Two, when evaluating alternate plans, which is... concepts they are putting forth with regard to production apply equally to businesses that produce tangible goods as well as that provide service Production, they suggest, is the "process of converting any design of product or service into the actual product or service," (177) . environmental analysis and forecast, internal analysis of strengths and weaknesses; formulation of strategy; evaluation of strategy; implementation of strategy; and, strategic. Book Review of Business Policy and Strategy: An Action Guide Submitted in partial fulfillment of B.S. in Business Administration