Definition of Business Policy

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INTRODUCTION TO BUSINESS POLICY

Definition of Business Policy:

Business Policy as defined by Christensen and others is “the study of the functions and
responsibilities of senior Management, the external problems that affect success in the total
enterprise and the decisions that determine the direction of the organization and shape its future.
The problems of policy in business, like those of policy in public affairs, have to do with the
choice of purposes for the moulding of organizational identity and character, the continuous
definition of what needs to be done, and the mobilization of resources for the attainment of goals
in the face of competition or adverse circumstances”.

Scope:

The above comprehensive definition covers many aspects of business policy.

It is considered; as the study of functions and the 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 courses of the action that the organization has
to adopt.
It involves a choice of purposes and defining what needs to be done in order to mould the
character and identity of the organization.
It is concerned with the mobilization or resources by the help of which the organization
can achieve its goals.

Importance of a Business Policy:

A. From the view point of course itself:

Business policy seeks to “integrate knowledge and experience” gained in various
functional areas of management It enables the learner to understand-and make sense of
the complex interaction that takes place between different functional areas.
Business policy deals with “the constraints and complexities of the real life business”.
Business policy offers a very broad perspective to its learners.
Business policy makes the study and practice of management more meaningful an done
can view business decision making in its proper perspective.

B. For the understanding of Business Environment:

Regardless of the level of management Business Policy creates an understanding of how
policies are formulated. This helps in creating an appreciation of the complexifies of the
environment that the senior management faces in the policy formulation.
By gaining an understanding of the business environment managers become
more receptive to the ideas and suggestions of the senior management Such an attitude on
the part of the managers makes the task of policy implementation simpler.
By being able to relate the environmental changes to policy changes within the
organization, mangers feel themselves to be a part of a greater design. This helps in
reducing their feelings of isolation.

C For understanding the organization:

Business policy presents a basic frame work for understanding strategic decision making
while a person is at the middle level of the management.
Business policy brings to the organization and to its managers “the benefit of years of
distilled experience in strategic decision making”.
An understanding of Business policy may lead to an improvement in job performance.

D. 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 be occupies.
Business policy enables the executives to avail an opportunity or avoid a risk with regard
to career planning and development
Business policy offers a unique perspective to executives to understand the senior
management viewpoint
An interesting by-product of business policy course is the theoretical framework,
provided in the form of strategic management model. This model provides powerful
insights in dealing with policy-making at the macro level as well as at an individual level
through self-analysis.

Purpose of Business policy:

The purpose of business policy is three fold:

To integrate the knowledge gained in various functional areas of management
To adopt a generalist approach to problem-solving and
To understand the complex inter-linkages operating within an organization through the
use of systems approach to decision making and relating them to changes taking place in
the external environment

Objectives of Business Policy:

A. In terms of knowledge:

The learner has to understand the various concepts like strategy, polices, plans and
programmes etc.
Knowledge about the environment (external & internal) and how it affects the
functioning of an organization is vital in understanding business policy. Through the

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 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”. The
difference between policy and strategy can be summarized as follows-

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.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to achieve it.
b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i., it should be neither too broad nor too narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical, i., it should analyze the key components of the strategy.
g. It should be credible, i., all stakeholders should be able to believe it.

3. Vision

A vision statement identifies where the organization wants or intends to be in future or
where it should be to best meet the needs of the stakeholders. It describes dreams and
aspirations for future. For instance, Microsoft’s vision is “to empower people through
great software, any time, any place, or any device.” Wal-Mart’s vision is to become
worldwide leader in retailing. A vision is the potential to view things ahead of
themselves. It answers the question “where we want to be”. It gives us a reminder about
what we attempt to develop. A vision statement is for the organization and it’s members,
unlike the mission statement which is for the customers/clients. It contributes in effective
decision making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this
understanding to direct and guide the organization towards a better purpose. It describes
that on achieving the mission, how the organizational future would appear to be.

An effective vision statement must have following features-

a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned
and shared by everyone involved in the organization.

4. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve. Goals
specify in particular what must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete. They co-ordinate and integrate
various functional and departmental areas in an organization. Well made goals have
following features-

a. These are precise and measurable.
b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.
Effective objectives have following features-

f. These are not single for an organization, but multiple.
g. Objectives should be both short-term as well as long-term.
h. Objectives must respond and react to changes in environment, i., they must be
flexible.
i. These must be feasible, realistic and operational.

One of the first things that any observer of management thought and practice asks is whether a
particular organization has a vision and mission statement. In addition, one of the first things that
one learns in a business school is the importance of vision and mission statements.

This article is intended to elucidate on the reasons why vision and mission statements are
important and the benefits that such statements provide to the organizations. It has been
found in studies that organizations that have lucid, coherent, and meaningful vision and mission
statements return more than double the numbers in shareholder benefits when compared to the
organizations that do not have vision and mission statements. Indeed, the importance of vision
and mission statements is such that it is the first thing that is discussed in management textbooks
on strategy.

Some of the benefits of having a vision and mission statement are discussed below:

 Above everything else, vision and mission statements provide unanimity of purpose to
organizations and imbue the employees with a sense of belonging and identity. Indeed,
vision and mission statements are embodiments of organizational identity and carry the

The strategic management process means defining the organization’s strategy. It is also defined
as the process by which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance. Strategic management is a continuous process that
appraises the business and industries in which the organization is involved; appraises it’s
competitors; and fixes goals to meet all the present and future competitor’s and then reassesses
each strategy.

Strategic management process has following four steps:

Environmental Scanning- Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes. It helps in analyzing the
internal and external factors influencing an organization. After executing the environmental
analysis process, management should evaluate it on a continuous basis and strive to
improve it.
Strategy Formulation- Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving organizational purpose.
After conducting environment scanning, managers formulate corporate, business and
functional strategies.
Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.
Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s implementation meets
the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic management
plan will revert to these steps as per the situation’s requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.

Organizational environment consists of both external and internal factors. Environment must be
scanned so as to determine development and forecasts of factors that will influence
organizational success. Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships within an organization’s
internal and external environment. It helps the managers to decide the future path of the
organization. Scanning must identify the threats and opportunities existing in the environment.
While strategy formulation, an organization must take advantage of the opportunities and
minimize the threats. A threat for one organization may be an opportunity for another.

Internal analysis of the environment is the first step of environment scanning. Organizations
should observe the internal organizational environment. This includes employee interaction with
other employees, employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural resources, brand
awareness, organizational structure, main staff, operational potential, etc.

Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an
organization.

As business becomes more competitive, and there are rapid changes in the external environment,
information from external environment adds crucial elements to the effectiveness of long-term
plans. As environment is dynamic, it becomes essential to identify competitors’ moves and
actions. Organizations have also to update the core competencies and internal environment as per
external environment. Environmental factors are infinite, hence, organization should be agile and
vigile to accept and adjust to the environmental changes. For instance – Monitoring might
indicate that an original forecast of the prices of the raw materials that are involved in the
product are no more credible, which could imply the requirement for more focused scanning,
forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar
manner, there can be changes in factors such as competitor’s activities, technology, market tastes
and preferences.

While in external analysis, three correlated environment should be studied and analyzed —

 immediate / industry environment

After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to its
market or supply sources.

Setting Quantitative Targets – In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this
is to compare with long term customers, so as to evaluate the contribution that might be
made by various product zones or operating departments.
Aiming in context with the divisional plans – In this step, the contributions made by
each department or division or product category within the organization is identified and
accordingly strategic planning is done for each sub-unit. This requires a careful analysis
of macroeconomic trends.
Performance Analysis – Performance analysis includes discovering and analyzing the
gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions must
be done by the organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the organization. An
attempt is made by the organization to estimate its probable future condition if the current
trends persist.
Choice of Strategy – This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.

Strategy implementation is the translation of chosen strategy into organizational action so
as to achieve strategic goals and objectives. Strategy implementation is also defined as the
manner in which an organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead to competitive advantage and
a better performance. Organizational structure allocates special value developing tasks and roles
to the employees and states how these tasks and roles can be correlated so as maximize
efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But,
organizational structure is not sufficient in itself to motivate the employees.

An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes, norms
and beliefs shared by organizational members and groups.

Following are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.
Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.

Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an
organization. New power relationships are predicted and achieved. New groups (formal
as well as informal) are formed whose values, attitudes, beliefs and concerns may not be
known. With the change in power and status roles, the managers and employees may
employ confrontation behaviour.

Following are the main differences between Strategy Formulation and Strategy Implementation-

Strategy Formulation Strategy Implementation
Strategy Formulation includes planning and
decision-making involved in developing
organization’s strategic goals and plans.

Strategy Implementation involves all those
means related to executing the strategic plans.

In short, Strategy Formulation is placing the
Forces before the action.

In short, Strategy Implementation is managing
forces during the action.
Strategy Formulation is an Entrepreneurial
Activity based on strategic decision-making.

Strategic Implementation is mainly an
Administrative Task based on strategic and
operational decisions.
Strategy Formulation emphasizes on
effectiveness.

Strategy Implementation emphasizes on
efficiency.
Strategy Formulation is a rational process. Strategy Implementation is basically an
operational process.
Strategy Formulation requires co-ordination
among few individuals.

Strategy Implementation requires co-
ordination among many individuals.

Strategy Formulation requires a great deal of
initiative and logical skills.

Strategy Implementation requires specific
motivational and leadership traits.

Strategic Formulation precedes Strategy
Implementation.

Strategy Implementation follows Strategy
Formulation.

Taking Corrective Action – Once the deviation in performance is identified, it is essential to plan
for a corrective action. If the performance is consistently less than the desired performance, the
strategists must carry a detailed analysis of the factors responsible for such performance. If the
strategists discover that the organizational potential does not match with the performance
requirements, then the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of strategic management,
reframing of plans according to new resource allocation trend and consequent means going to
the beginning point of strategic management process.