book review of business policy and strategy

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

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