Essay/Term paper: Book review of business policy and strategy: an action guide

Essay, term paper, research paper:  Economics

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 suggest that weighing
different, exclusive 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 their proper use. 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 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
most attractive? Three, what is going wrong? Where? How can it be fixed?
Four, how can activities be coordinated? Five, is the company operating as
effectively as it can in its environment (144-145)? Anticipating that readers
are curious as to how to begin their analysis, the authors suggest that they
begin by taking financial information from the most recent ten years. Any
trends that exist over this period are likely to persist, according to the
authors, because trends generally do persist barring unforeseen circumstances.
The authors suggest 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 trouble (147). Returning briefly to
ratio analysis at this point, the authors identify four key 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 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 have when
considering a company's financial position. This discussion reminds the reader
that the valuation method or changing valuation may result in a company
overstating or understating its actual position. The reader is then introduced
to the funds flow concept that 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 performance.
They 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 is 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 provide service. Production, they suggest, is the "process of converting
any design of product or service into the actual product or service," (177).