Book Review Of Business Policy And Strategy: An Action Guide Essay, Research Paper

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).