You are on page 1of 50

Business policy- Evolution, meaning, concept and definition

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.
It is the study of the roles and responsibilities of top level
management, the significant issues affecting organizational success and the
decisions affecting organization in long-run.
Features of Business Policy
An effective business policy must have following features-
Specific- Policy should be specific/definite. If it is uncertain, then the
implementation will become difficult.
Clear- Policy must be unambiguous. It should avoid use of jargons and
connotations. There should be no misunderstandings in following the policy.
Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
Appropriate- Policy should be appropriate to the present organizational goal.
Simple- A policy should be simple and easily understood by all in the
organization.
Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
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.
Stable- Policy should be stable else it will lead to indecisiveness and
uncertainty in minds of those who look into it for guidance.
Difference between Policy and Strategy
The term “policy” should not be considered as synonymous to the term
“strategy”.

•Policy is a blueprint of the organizational activities which are


repetitive/routine in nature. While strategy is concerned with
those organizational decisions which have not been dealt/faced
before in same form.
•Policy formulation is responsibility of top level management.
While strategy formulation is basically done by middle level
management.
•Policy deals with routine/daily activities essential for effective
and efficient running of an organization. While strategy deals
with strategic decisions.
•Policy is concerned with both thought and actions. While
strategy is concerned mostly with action.
•A policy is what is, or what is not done. While a strategy is the
methodology used to achieve a target as prescribed by a policy.
Examples of Business Policies
• Policies are broad statements, adopted by a
business, that set out what the business stands for
and what its goals are.
• Procedures are usually implemented to support each
policy explaining how to apply the policy to the
business's customers, employees and products, and
the instructions necessary to follow the policy.
• Examples of areas where businesses typically
institute policies are ethics, human resources,
accounting and customer service.
Examples of Business Policies
Ethics
• Ethics policies address issues such as honesty,
fairness, integrity and respect.
• For example, the long-standing ethics policy
regarding honesty instituted at Levi Strauss and Co.
as quoted by Inc.com reads: “Honesty: We will not
say things that are false. We will never deliberately
mislead. We will be as candid as possible, openly and
freely sharing information, as appropriate to the
relationship.”
Examples of Business Policies
Human Resources
• Policies imposed in the area of human
resources address issues such as hiring and
termination, benefits, promotion and salary
increase and discipline.
• For example, a typical human resources policy
addressing hiring might read: “New hires shall
be subject to a three month probationary
period during which employment is 'at-will.'”
Examples of Business Policies
Customer Service
• Customer service policies address issues such as employee attitude
toward customers.
• A sample policy dealing with customer relations as reported by
Infonet.com reads: “All employees deal with our customers! No matter
what your position, every employee impacts the customer in some way.
Employees are reminded to promote the company just as they would
represent their families. This means being friendly and courteous on the
business property, while visiting our stores, driving our vehicles on roads
and highways and in daily interactions. After all, you never know who
knows the person you are talking to... Other ways employees can enhance
customer relationships are to answer phones before three rings, transfer
office calls correctly, follow through on promises, give updates if
necessary, greet walk-in customers or just smile and say hello. Treating
other as you expect to be treated goes a long way in customer service
relationships.”
Examples of Business Policies
Accounting
• Accounting policies deal with how money is handled
in the company, both the spending and the
documenting of inflow and out-flow.
• An example of a typical accounting policy regarding
receipt of gifts to an organization might read: “Gifts
of stock, bonds, manuscripts, art and antiques are
recorded and such information is openly available to
officers, stock holders and employees as with any
other corporate asset.”
Nature of Business Policy
• It is the study of the functions & responsibilities of the
senior Management related to those organizational
problems which affect the success of the total
enterprise.
• It deals with the determination of the future course of
action that an organization has to adopt
• It involves choosing the purpose & defining what needs
to be done in order to mould the character & identity
of an organization
• It is also concerned with the mobilisation of resources,
which will help the organization to achieve its goals.
• It also lays down a Long-term plan
Importance of Business Policy
• For Learning the Course
• It seeks to integrate the knowledge & experience
gained in various functional areas of management, It
enables the learner to understand & make sense of the
complex interaction that takes place between different
functional areas.
• It deals with the constraints & complexities of real-life
businesses.
• It cuts across the narrow functional boundaries &
draws upon a variety of sources
• It makes the study & practice of management more
meaningful
Contd.
• For Understanding the Business Environment
• It helps to create an understanding of how policies are
formulated.
• Managers become more receptive to the ideas &
suggestions of the senior management.
• Managers feel themselves to be a part of a greater
design. This helps to reduce their feeling of isolation.
Contd.

• For Understanding the Organisation


• It presents a basic framework for understanding
Strategic decision-making
• It brings the benefit of years of distilled experience in
strategic decision-making
• Leads to improvement in job performance.
Contd.
• For Personal Development
• It is beneficial for an executive to understand the impact of
policy shifts on the status of one’s department and on the
position one occupies
• It enables executives to avail an opportunity or avoid a risk
with regard to career planning and development
• While making a career choice a study of BP provides an
adequate grounding for understanding the macro factors
and their impact at the micro level.
• It offers a unique perspective to understand the senior
management’s viewpoint
• It provides a theoretical framework provided in the form of
the strategic management model.
Purpose of Business Policy
• To integrate the knowledge gained in various
functional areas of management
• To adopt a generalist approach to problem-
solving, and
• To understand the complex interlinkages
operating within an organisation through the
use of a systems approach to decision-making
and relating these to the changes taking place
in the external environment.
The
The Evolution
Evolution of
of Strategic
Strategic Management
Management

1950s 1960s Early-mid Late1970s Late 1980s Late 1990s


1970s early 1980s early 1990s early 2000s

DOMINANT Budgetary Corporate Corporate Analysis of Quest for Strategic


THEME planning & planning strategy industry & competitive innovation
control competition advantage The “New
Economy”
MAIN Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ISSUES ion advantage knowledge

Budgeting Forecasting & Portfolio Analysis of Resource Dynamic


CONCEPTS project appraisal investment planning. industry & analysis. sources of
& planning Synergy competition Case advantage
TECHNIQUES market competences Knowledge
share management
cooperation

Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-


IMPLEMENT- financial corporate planning cation. selectivity. BPR. nization.
ATION management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest for
planning market share critical mass

15
Forecasting
• Forecasts
– Predictions, projections, or estimates of future
situations
• Types of Forecasts
– Event outcome forecasts: Predictions of the
outcome (effects) of highly probable future events
– Event timing forecasts: Predictions of when a
given event will occur
– Time series forecasts: Estimates of future values
in a statistical sequence (e.g., sales forecast)
Forecasting Techniques
• Informed Judgment
– Forecasts relying on intuitive judgments that are
based on how well informed the forecaster is
• Scenario Analysis
– Preparing written descriptions of alternative but
equally likely future situations
• Longitudinal scenarios: Describing how the future
situations will evolve from the present
• Cross-sectional scenarios: Describing future situations
at a given point in time
Forecasting Techniques (cont’d)
• Surveys
– A forecasting technique involving face-to-face
interviews and mail or e-mail questionnaires
– Problems with surveys
• Construction of the survey instrument
• Cost of administration
• Errors in data collection and interpretation
• Trend Analysis
– The hypothetical extension of a past series of
events into the future
Long Range Planning
• Strategy +planning
• Strategy – defined as
– Strategy is a mediating force between the
organization and its environment: consistent
patterns in streams of organizational decisions to
deal with the environment. Mintzberg, 1979, The Structuring of Organizations [P. 251]
– Long range planning ( Drucker 1970, Ansoff 1965) Consists of
• Objectives or goals
• Methods, procedures, means to realize goals
• Apply to most segments of business
• Contain auditing and control mechanisms
Strategic planning
• Strategic planning has been defined as
“a disciplined effort to produce fundamental decisions and
actions that shape and guide what an organization is, what it
does, and why it does it” (Bryson 1995).
• It provides a systematic process for gathering information
about the big picture and using it to establish a long-term
direction and then translate that direction into specific goals,
objectives, and actions. It blends futuristic thinking, objective
analysis, and subjective evaluation of goals and priorities to
chart a future course of action that will ensure the
organization’s vitality and effectiveness in the long run. “
Strategic planning vs management
( Poister and streib 2005)

• “Strategic planning is the primary element but


not the essence of strategic management. The
other components …
include implementation and evaluation”
• Vinzant and Vinzant (1996) identified
performance measures derived directly from
strategic goals and objectives, and links
between strategic plans and budgets, as
critical elements of the strategic management
process.
Strategic planning
• Debate on
– Scope

– Content

– Involvement and participation

– Approach

– Converting plan into actions


Strategic planning
• Strategic planning enables you to answer the
following questions:
• Who are we?
• What capacity do we have/what can we do?
• What problems are we addressing?
• What difference do we want to make?
• Which critical issues must we respond to?
• Where should we allocate our
resources?/what should our priorities be?
Strategic planning—exercise
• What has happened in the past three years in the
external environment that could affect our work as an
organisation/project?
• What are the challenges and threats facing us as an
organisation/project in our external environment?
• What are the opportunities we should be taking
advantage of in the environment in order to:
– a Make us more sustainable as a project/organisation?
– b Help us achieve our vision
• What information do you have that you think is
important to share with others in the strategic
planning process?
Strategic planning –exercise
• What are the important strengths of our
organisation/project?
• What weaknesses are preventing our
organisation/project from achieving its vision?
• Do you think we are clear about our vision, values and
mission?
• What challenges have we failed to meet in the past
two to three years and why have we failed to meet
them?
• What challenges have we met well in the past two to
three years and what helped us to meet them?
• What is the most important outcome that you would
like to see emerging from this strategic planning
process? Why do you think it is so important?
Strategic planning –exercise 2
• Identify critical internal and external issues
which need to be addressed
• A critical issue is one that meets most or all of
the following criteria:

– Is related to a core problem

– Affects the lives of a significant number of people


either directly or indirectly
Strategic planning –exercise 2
• Critical issues
– Can be addressed through the competencies
and resources of the organisation or project

– Needs to be addressed if the organisation or


project is to be able to progress in its work

– Builds on the strengths of the organisation or


project and/or the opportunities available to it

– Addresses weaknesses in the organisation


and/or assists the organisation to deal with
threats to its work or existence.
Strategic planning
• What is planning? (Mintzberg 1981)
• It has been indicated as
– Future thinking
– Integrated decision making
– Formalized procedures and articulated results
– Programming– process driven by vision
– Formal procedure to force future thinking
• Drucker (1985)
– Identify changes which have happened– future
which has happened
Strategic Management
• Decision making is the most important
function of any manager. Strategic decision
making is the task of the senior management.
Both these kinds of decision making are
essentially the same. The difference lies in the
levels at which they operate. While decision-
making pertains to all managerial functions,
strategic decision-making largely relates to
the responsibilities of the senior
management.
Strategic Management

Strategic decision-making is done through the process


of strategic management.
Definition :

Strategic Management is defined as the dynamic


process of formulation, implementation, evaluation
and control of strategies to realize the organization’s
strategic intent.
• Strategic management is a dynamic process.
• It is not a one-time, static or mechanistic process.
• It is a continual, evolving, iterative process.
1-39
Elements in Strategic Management Process
A. Establishing the hierarchy of strategic intent :
1. Creating and communicating a vision
2. Designing a mission statement
B. Formulation of strategies
1. Performing environmental Appraisal
2. Doing organizational appraisal
3. Formulating corporate level strategies
4. Formulating business-level strategies
5. Undertaking strategic analysis
6. Exercising strategic choice
7. Preparing strategic plan
Elements in Strategic Management Process

A. Implementation of Strategies
1. Activating strategies
2. Designing the structure, systems and processes
3. Managing behavioural impementation
4. Managing functional implementation
5. Operationalising strategies
B. Performing Strategic Evaluation & Control
1. Performing strategic Evaluation
2. Exercising Strategic control
3. Reformulating strategies
The Foundation for Planning
• Mission

• Purpose or Goal

• Objectives

• Strategies

All Customer Driven


Strategic Planning
Vision/Mission

SWOT Analysis Gap Analysis

Goals

Objectives

Strategies
Vision
• Definition
• “Description of something (an org., corporate culture, a
business, a technology, an activity) in the future”
- Kotter
• “Mental perception of the kind of environment an
individual, or an organisation, aspires to create within a
broed time horizon and the underlying conditions for the
actualisation of this perception”
-El-Namaki
• “Category of intentions that are broad, all-inclusive and
forward thinking”.
-Miller and Dess
• Vision is future aspirations that lead to an inspiration to be
the best in one’s field of activity
Benefits of Vision
• Good visions are inspiring and exhilirating
• Represent a discontinuity, a step function and a jump
ahead so that the company knows what it is to be.
• Good visions help in the creation of a common identity and
a shared sense of purpose
• Good visions are competitive, original and unique. They
make sense in the marketplace as they are practical
• Good visions foster risk-taking and experimentation
• Good visions foster long-term thinking
• Good visions represent integrity, they are truly genuine and
can be used for the benefit of people.
Missions
• Mission is what an org. is and why it exists.
• It answers 3 fundamental questions :
– 1) What is our business?
– 2) What will it be ?
– 3) What should it be?
• Definition : “ Essential purpose of the org., concernig
particularly why it is in existence, the nature of the
business(es) it is in , and the customers it seeks to
serve and satisfy”.
- Thompson
• “ Purpose or reason for the organisation’s existence”
- Hunger & Wheelen
Characteristics of a Mission Statement
• It should be feasible
• It should be precise
• It should be clear
• It should be motivating
• It should be distinctive
• It should indicate major componants of strategy
• It should indicate how objectives are to be
accomplished
Corporate Objectives
• Are the desired future positions or destination
that it wishes to reach
• Are defined as ends which the organisation seeks
to achieve by its existence and operation.
• May be classified into two types :
• External Institutional Objectives – which define the impact
of the organisation on its environment, e.g., to develop a
high degree of customer confidence by sustaining high
standards of excellence in product quality.
• Internal Objectives – which define how much is expected to
be achieved with the resources that the organisation
commands, e.g., to raise the average rate of return on
investment to 15% p.a.
Based on Objectives, types of
Organisations
• Marginal Organisations- usually small firms which are
without any formal objectives defined. Newer estd. firms
which are preoccupied with the problem of survival belong
to this category.
• Appendix Org.- which are owned & controlled by other org.
e.g., a wholly-owned subsidiary or an ancillary firm, which
has external objectives geared to the goals of the parent
organisation, but has no internal objectives of its own.
• Corporations- i.e., independent, estd. Firms which have
fully developed internal objectives but have only a vague
sense of external purpose.
• Institutions- i.e., Org. with fully developed formal
objectives, both external & internal.

You might also like