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but are expected to devote their time and energy to thinking and deciding about the
future courses of action. With its concern for the determination of the future courses of
action, business policy lay down a long term plan which the organization then follows.
While determining the future courses of action, the senior management has a mental
picture of the type of organization they want their company to become.
While deciding about future courses of actio9n, the senior management are confronted
with a wide array of decisions and actions that could possibly be taken.
The organizational decisions are not made in isolation and managerial actions can be
taken without providing the resource necessary for them. While deciding about the
future courses of actions the senior management concern themselves with the financial,
material, and human resources that would be required for the implementation of the long
term plans.
Other Definitions of Business Policy
Terry and George define business policy A business policy is an implied overall guide
setting up boundaries that supply the general limits and direction in which managerial
action will take place
Hickman C.R. defines business policy as a device which is used to execute the alternate
solution to the second plan.
Rodgers and David C. define business policy A business policy is one which focuses
attention on the strategic allocation of scarce resources: human, financial, physical or
intangible.
It is a principles or group of principles, along with their consequent rules of action that
provide for the successful achievement of specific organization or business objectives.
1.2 Features of Business Policy
An effective business policy must have following features1. Specific- Policy should be specific/definite.
implementation will become difficult.
If
it
is
uncertain,
then
the
2. Business policy usually occurs at the business unit or product level and it
emphasizes improvement of the competitive position of a corporation products or
services in the specific industry or market segment served by that business unit.
Business strategies may fit within the two overall categories of competitive or
cooperative strategies.
3. Functional policy is the approach taken by a functional area to achieve corporate
and business unit objectives and strategies by maximizing resources productivity. It is
concerned with developing and nurturing a distinctive competence to provide a
company or business unit with a competitive advantage.
1.6 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 follows1. 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.
2. Policy formulation is responsibility of top level management. While strategy
formulation is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running
of an organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned
mostly with action.
5. 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.
Southern University Bangladesh
Business Policy & Strategy
Chapter 1: Introduction to Business Policy
Lesson 2: Functional Plan and Policies
2.1 Nature of Functional Plan and Policies
Functional strategies operate on a level below the business strategies. There might be
several sub functional areas within functional strategies. For instance, the functional area
of marketing may have sub functions, such as, product development, advertising, sales
promotion, market research, and so on.
Functional plan and policies are the plan or tactics to implement business strategies, are
made within the guidelines which have been set at higher level. Plans are formulated to
select a course of action, while policies are required to act as guidelines to those actions.
Functional plans and policies are therefore, in the nature of the tactics which make a
strategy work.
Functional managers need guidance from the corporate and business strategies in order
to make decisions. In simple term, functional plans tell the functional mangers what has
to be done, while functional policies state how the plans are to be implemented.
2.2 Need for Functional Plans and Policies
Glueck has suggested five reasons to show why functional plans and policies are needed.
Functional plans and policies are developed to ensure:
1. The strategic decisions are implemented by all the parts of an organization.
2. There is a basis available for controlling activities in the different functional areas
of a business.
3. The time spent by functional managers on decision-making may be reduced as the
plans lay down clearly what has to be done and the policies provide the
discretionally framework within which decisions need to be taken.
4. Similar situations occurring in different functional areas are handled by the
functional managers in a consistent manner.
5. Coordination across the different functions takes place where necessary.
2.3 Financial Plans and Policies
The financial plans and policies of an organization are related to the availability, usage,
and management of funds. Strategists need to formulate plans and policies in these
areas so that strategies may be implemented effectively.
Sources of Funds:
Plans and policies related to the sources of funds deals with financing or capital-mix
decisions plans and policies have to made for the following major factors:
a. Capital structure
b. Procurement of Capital and Working Capital Borrowings
c. Reserves and surplus as sources of funds
d. The relationship with lenders, banks, and financial institutions.
Usage of Funds:
Plans and policies for the usage of funds deal with investment or asset-mix decisions.
The important factors that are related here are :
a. Capital Investment
b. Fixed Asset Acquisition
c. Current Assets
d. Loans & Advances
e. Dividend Decision
f. Relationship with Shareholders
Management of Funds:
The management of funds is an important area of financial plans and policies. It basically
deals with decisions related to the systemic aspects of financial management. The major
factors for which plans and policies related to the management of funds have to be
made are:
a. The systems of finance, accounting, and budgeting
b. Management Control system
c. Cash, Credit, & Risk Management