Business Policy

 Business Policy 

UNIT - I

Business Policy: Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. 

Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in the long-run.

Features of Business Policy: An effective business policy must have following features-

1. Specific & Definite: Policy should be specific/definite. If it is uncertain, then the implementation will become difficult.

2. Clear: Policy must be unambiguous. It should avoid the use of jargon and connotations. There should be no misunderstandings in following the policy.

3. Reliable & Uniform: Policy must be uniform enough so that it can be efficiently followed by the subordinates.

4. Appropriate: Policy should be appropriate to the present organizational goal.

5. Simple: A policy should be simple and easily understood by all in the organization.

6. Inclusive/Comprehensive: In order to have a wide scope, a policy must be comprehensive.

7. Flexible: Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.

8. Stable: Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

Scopes of Business Policy:

1. It should cover all the aspects of business.
2. It includes the functions and responsibility of senior employees.
3. Deal with determination of future course of action.
4. Involves a choice of purpose and defining the needs.
5. Include the resources by the help of which organization can achieve its goal.

Importance of a Business Policy: Policies are the key for success of the business. Policies offer great advantages to the management if they are stated with clarity. It raises the confidence of the line managers. They make the decisions within a given boundary. The managers act without the need for consulting the senior managers every time which minimizes the need for close supervision. It also builds the confidence of the managers. The importance of business policies are discussed as follows:

1. Control: Policy facilitates effective control on the working of the organization. It indirectly controls the managers at different levels without directly interfering in their routine working.

2. Effective Communication: Generally policies are written and well drafted statements. Hence there is not a remote chance of confusion or miscommunication. By setting policies the management ensures that decisions made will be consistent and in the best interest of the organization. Clearly laid down policies try to eliminate personal hunch and biasness.

3. Clarity: Policies clarify the viewpoint of the management for the purpose of running a particular activity / activities.

4. Motivation: Policy enables the line managers to be self reliant. They take the decision on their own in the confined border of the policy. This raises their confidence and motivates them. A well drafted policy provides a pattern within which delegation of authority is possible.

5. Policy Review: Regular review of policy is must to see to it that the existing policies are relevant in the given situation. If required policy may be modified or altered depending on the business environment. Review of policy at regular intervals provides a method of anticipating future conditions and situations and helps to resolve how to deal with them.

6. Economical and Efficient: Policy enables the management to carry out its operations effectively and efficiently. It enhances the working of the organization.

7. Coordination of Efforts: Policies ensure coordination of efforts and activities at different levels in the organization. Activities and duties are assigned in such a way that all activities in the organization are integrated effectively. Policy coordinates with individual efforts.

8. High Morale: A well crafted policy can raise the overall morale of an enterprise. Policy enables the managers to understand the intention of the management.

Classification of Business Policy.

Business Policy Types:- Policies may be divided into different types of policies from different approaches.

A. On the Basis of Source: Koontz and O'Donnell divide the sources of policy into the following four types:

1. Originated Policy
2. Appealed Policy
3. Implied Policy
4. Externally imposed policy

1. Originated Policy: By originated policy they refer to policy which originates from the top management itself. These policies are aimed at guiding the managers and their subordinates in their operations. They flow basically from the organization's objectives as defined by top management. From the broad policy at the top, other derived policies may be developed at subsequent levels depending upon the extent of decentralization. However all such policies, whether originated by top management or subordinate managers, are described as "originated policy.

2. Appealed Policy: It is meant decisions given in case of appeals in exceptional cases upto management hierarchy. In case of doubts, an executive refers to higher authority on how he should handle the matter. The direction that he gets is described as appealed policy and constitutes a precedent for future managerial action.

3. Implied Policy: Implied policy is meant policies which emanate from conduct, It also originates where existing policies are not enforced. Again, guidelines may be provided by the decision makers unconsciously and become implied policies.

4. Externally Imposed Policy: Policies may be imposed externally that is from outside the organization on such as by Government control or regulation, trade associations and trade union etc.

B. On the Basis of different Levels: Policies are divided into the following types on the basis of levels:

1. Basic Policies.

2. General policies.

3. Departmental Policies

1. Basic Policies: Policies which are followed by top management level are called as basic policies. For example, the branches will be opened in different place where the sales exceed RS. Five, lakhs

2. General Policies: These policies affect the middle level management and more specific than basic policies. Example: Payment will be provided for overtime work only if it is allowed by the management.

3. Department Policies: These policies are highly specific and applicable to the lower levels of management. Example: Tea will be provided free for workers in night shifts.

C. On the Basis of Managerial Functions: Policies arise from decision pertaining to fundamental managerial functions are called managerial policies.

These includes the following policies:

1. Planning policies.

2. Organization policies.

3. Motivation and control policies.

1. Planning Policies:- Planning policies involve the future course of action. Mere policies are formulated as to achieve the targets regarding the future. Planning policies may formulate for whole organization or for divisional departments.

2. Organization Policies: These policies are highly specific to organizational goals and objectives

3. Motivation and Control Policies: Here policies are formulated to motivate people and control the activities, which leads to achieve the organizational objectives with the fullest satisfaction of employees