Policy-making is one of the most important components of business planning.

Policies are a guide to action. They provide broad guidelines as to how objectives
of business are to be achieved. While objectives are a goal or an end to be
sought. policies are a general rule of action or guideline which helps in attaining
the goal. The objective sets a long -range target; a policy provides guides which
assiSts the company in achieving this target.
Policy does n0t tell a person exactly what to do. but it does point out the
direction in which to go. Familiar policies are summed up in these statements:
We sell only for cash and allow liberal discount thereon". We insure all property
worth more than Rs. 50.000/- against loss by re or burglary. Our motto is to
serve the customers in all possible ways in matters of quality, price. weight and
contents. In each instance. some important aspect of a recurring problem has
been singled out, and a guide established for dealing with it.
On the other hand. some policies provide only board guidelines, such as.
preference will be given to 'goods produced by union labour" does indicate the
intention but leaves the purchaser to decide whether the preference comes rst
or whether it should be considered only when all other considerations are equal.
Yet, some policies can be much more specific. For example, an investment
banking firm makes the following statement about the duration of vaca'iOn to its
employees:
Employees shall normally be entitled to vacation according to the following
schedule:
On pay roll 6 to 18 months prior to march 1. 2000 - one weeks.
On pay roll 6 years to 15 years prior to March I. 2000 - Three weeks.
On pay roll over 15 years prior to March I, 2000 - Four weeks.
Policies ma be defined 35 "(he mOdc of Kong, ind pglhcpcs
underlying the activities 0 3" Orgamsation .or .an '"s":.lc':ngu:i:':: thiniliirli:
in that they are'general statements of prtnCIples w I'd we managcment in
decision-making and action in an organisation. They gm 6 ade or standing
the conduct of business/enlchllse Operations; and Offer a reldY-m onsidcfed as
:1
answer to a recurring question. They are: therefom sometimes c temial
substitute for commbn sense. However. pollClcs cannm answer every Po the
problem situation. One can hardly refer to all POIiCies as s'atemems' smcc y
are implied in the actions of managersWe give below some of the denitions of business policy:
Terry says. "A business policy is an implied overall guide setting UP
boundaries that supply the general limits and direction in which managerial aCllon
will take place."
ThUS. according to this definition. policy reveals the managements

intentions for the future. They spell out clearly the sanctioned general direction
and areas within which work has to be done.
According to Rodgers, A business policy is one which focuses attention
on the strategic allocation of scarce resources: human. nancial. physical or
intangible. Conceptually speaking, strategy is the direction of such resource
allocation while planning is the timing is the timing of allocation.
This a business policy is concerned with developing the general management
point of View which demands that the manager sublimates his departmental,
functional or specialist perspective in order to take a balanced company-widelook.
Haner has dened business policy as a statement - verbal. written. Or implied-of
those principles and rules that are set by executive leadership as guidelines and
constraints for the organisation 's thought and action. Their purpose is. to enable
the management to relate properly the organisation's work to its
objectives."
Yoder observes. "A management policy is a predetermined. selected course
established as a guide towards accepted goals and objectives. Policies establish
the framework of guiding principles that facilitate delegation to lower levels and
permit individual managers to select appmpriaie tactics or programmes... Such
POIiCiCS are developed by working organisations to keep them on course.
headed and directed towards their organisational objectives. These define the
intentions of the organisation and serve as guidelines to give conswncy and
continuity to total operations... They provide a base for management by principle.
as contrasted to management by expediency'.... In fact. they serve as a road
map for managers."
1" ""3 Opinion 0f Miller. A policy is a statement or a commonly accepted
understanding of decision-making criteria or formulae, prepared or evolved to
achieve economy in operations by making decision relatively routine on frequently
occurring problems and, consequently. facilitating the delegation of such decision
to lower managerial levels."
According to this definition. a policy by providing decisiommaking criteria
gives assurance that decisions made will be consistent. fair and in .keeping
with the objectives and interests of the business. A policy permits deCIsions to
be made on similar problems without repetition of the closely-reasoned
and expensive analysis required initially to state the policy to make the
decision.
We may define business policy as a principle or a group of related principles.
along with their consequent rule (s) of action that provide for the successful
achievement of specific organisation/business objectives. Accordingly. a

policy contains both a principle and a rule of action." Both should be there
for the maximum effectiveness of a policy. One or the other. when omitted. is
implied.
CHIEF FEATURES OF BUSINESS POLICY

Analysing the denitions. certain special features of a business policy may

be noted thus:
I. Policies are a general statement of principles for the attainment of
objectives which serve as a guide to action for the executives at different
levels. In other words, they are a broad path along which the subordinates
move towards their objectives.
2. Policies have an hierarchy, i.e.. for each set of objectives at each level of
management, there is a corresponding set of policies. For example. basic
overall corporate policies determined by the central management (or the
board of directors): the corporate executive policies determined by the top
management; divisional and/or departmental policies determined by their
Strategic Management
managers; and sectional pOIiCieS detenined by the middle manage. and
so on, right up to the first line supervisors.
3. The policies delimit the area within which a decision is to be made and
ensure that the decision will be constant with and contribute to the
objectives. However, they do allow some discretion on the part of the man
on the ring line. Otherwise. they would be mere rules. Too much discretion
~ in matters on policy may prove harmful to the accomplishment of
organisational objectives. Hence. it is generally within limits. The amount
of discretion allowed depends upon then policy. which in turn reflects the
POSitim and authority in the organisation. In most policies. the discretion
area is very broad. but in others. it is extremely narrow.
4. Policies in general are meant for mutual application by subordinates.
They are framed .to suit a specic situation to which they are applied, for
they cannot apply themselves.
5. Policies tend to predccide issues, avoid repeated analysis and give a

unified structure to ether types of plans. thus permitting managers to

delegate authority while maintaining control.
6. In a well-managed organistion, policies are found in all functional areas
and at various levels within these areas. There are policies for corporate
planning. marketing. research and develoPrnent. engineering. manufacturing.
inventory. physical distribution. accounting. nancial, costing. In a typical
manufacturing rm. within the marketing area. advertising. personal selling.
and special promotion policies. among others, are found.
7. Policies serve an extremely useful purpose. They avoid confusion and
provide clear-cut guidelines at all levels to subordinates; and therefore.
they enable the business to be carried on smoothly and often without break.
They also lead to better and maximum utilisation of resources, human.
nancial, and physical. by adhering to actions for conservation.
Thus, it should be noted that the business policy is the keystone in the arch
of management and the life-blood for the successful functioning of business.
because without well-laid down policies. there cannot be lasting improvements
in the economic condition of the rm and labour management relations. It
indicates an agreement to a general cause of action. telling specifically what the
business proposes to do and suggest the values and view points which dominate
the top executives and organisations action.
Finally. a policy is a positive declaration and a command to its followers. It
translates the goals of an organisation into selected routes and provides the
general
guidelines that prescribe and prescribe programmes, which in turn. dictate
practices and procedures.
Business Policy
business policy to be effective should permanent all funtional areas of
management viz production, marketing finance and human resource management.
the main purpose of business policy are discussed hereunder
. Clarify Objectives: Objectives are general and open-ended statements.
They are ends towards which activity is aimed. Purpose is the
fundamental activity of the business. that links the business with the
some Thus. Objectives are derived from policies.
Policies provide direction to the business by clarifying the objectives.
This is because. objectives are just general statements.
9 Guide planning: Planning is deciding in advance what to do. how to

do, when to do and who will do it? Therefore. these should be some
guide to decide the planning process. Policy provider direction and the
planning process in an organisation. Thus, policy guides planning in
business organisations.
management. The main purpose 0
Help subordinates in making operating decisions: Policies provide
the direction to the business and its objectives. Objectives in their turn
provide the basis for formulation of strategies as well as strategic
decisions. Managers make strategic decisions, based on the objectives
formulated by the senior managers. Strategic decisions become the bases
for making routine decisions by the subordinates at the lower level in
business organisations. Thus. policies, help the subordinates to make
operating decisions.
0 Facilitates overall coordination: Policy is the general and overall
direction for the entire business organisation. that also links the business
activities with the societal needs. Policies. thus coordinates the business
and society. in addition, policy is the overall direction to the entire
business. Various business units formulate their objectives based on the
organisational policy. Thus, organisational policy links and coordinates
the activities of all the units of the business. In addition. policy also
coordinates business activities with the societal needs.
0 Facilitates control: Policy. as a overall and ultimate direction. enables
the manager at the top level to formulate standards and benchmarks.
Managers at the middle and lower levels design standards and
benchmarks at their respective levels. based on the overall standards
Managers measure the performance of subordinates. compare it with.
the standards and control the activities of the subordinates. Thus. policy
facilitates control.
O Acts as a direction for executive decision making: As discussed earlier.
objectives are drawn from policy. Objectives are general and open ended
statements. They. in their turn. provide direction tot he executives in
formulating goals and making strategic decisions. Thus. policy acts as a
direction for executives in strategic decision making.
* Build-up employee enthusiasm and loyalty: Employees are motivated.
if the direction and goals are clear. The employees can maximise their
productivity and achieve their highest potential. if they are clear of
what is expected from them. Employees feel enthusiastic to achieve
highest results. when their directions are clear. Policy provides clear
directions to and expectations from employees. Employees would be
loyal to the organisation. their needs are fullled. Thus. policy build-up

employee enthusiasm and loyalty.

*Seek to ensure consistency and uniformity in decisions: Policy
provides overall direction. All the organisational and departmental
objectives are based on policy. Therefore. all the decisions meet the
basic requirement of the policy. Therefore. all the organisational
decisions should be uniform with each other and with the policy. Thus.
policy ensures consistency and uniformity in decisions.

OBJECTIVES OF BUSINESS POLICY

Policy is general statement or understanding which guide or channel thinking

and action of business as a whole. Policy tends to predecide issues. avoid
repeated
analysis and provide a unied structure to other types of plans. Business policy
aims at achieving the following objectives.
To link the business with the society: Business policy links the societal
requirements with the business activities. For example. policy of British
Airways is to provide safe, fast and reliable air travel. Thus. various
businesses are established to meet the needs of the society like education,
medical. travel, banging, insurance. food and comforts. Thus. business
policy links the business with the society.
To provide guidelines: One of the objectives of policy is to provide
guidelines to the management at various levels lilte top. middle
and lower about the organisations expectations from them. The
guidelines minimise the conicts between the job performance and job
expectations.
To Systematic Business Decisions: Business policy. by providing
guidelines brings a systematic approach to decision-making process. in
other words. the expectations to the business. the goals of the
organisation, the directions of the organisational activities have become clear
through policy. The clear direction systematise the process of decisin making in
an organisation.

To promote better performance: Business objectives, goals, strategies

and tactics are derived from the business policies. Standards of
performance are drawn from the strategies. Therefore, policy provides

standards of performance of the organisation as well as various

departments and jobs. These performance standards provides targets
and motivate the employees to achieve them. Thus, policy promotes
better organisational and individual performance.
Tb improve communication: Policy, when it is translated into individual
Performzlnce standards need to be communicated to all the employees
down to the lowest level in an organisation. Thus. it improves the
communication.
9 To improve allocation of resources: Business policy indicates the
organisational activities. time frame to perform the activities and the
. resources needed to perform the activities. Thus. policy enables the
formulate the need for resources and allocates the resources based on
the organisational priorities, which is turn are derived from the policy.
Thus the policy improves the allocation of resources.
* To improve coordination: Policy is the linking pin and common thread
for connecting, integrations and coordinating the total organisational
activities. Thus, the policy improves coordination most efficiently.
* To facilitation holistic approach: Policy helps the managers to
understand the total organisation. organisational linkages with the
external environment like customers, suppliers. creditors, bankers.
government, society, business process outsourcing points, marketing
intermediaries and infrastructure providers. Thus. the managers of each
department/unit are enabled to view the total system including internal
and external while making business decisions of their departments/unity
jobs. Thus, policy provides for holistic approach in managing business
operations.
Examples of Business Policy
We give below the corporate policy on social responsibility of three
companies: (Exhibit 1.1)
Exhibit 1.1 : Corporate Policy on Social Responsibility

1. We are actively concerned with maintaining a healthy environment, not

only with the physical environment around us, but also With the
environament of the mind and spirit of the people in the company, and In
communities where our plants operate. We will endeavour our employment
practices to ensure equal opportunity for all qualified persons, irrespective
of caste, creed, or sex, who are now employed or may seek employment
hereafter in plants'and offices of the company (A Textile Concern).
2. his out company's policy to dispose of air-borne and water borne wastes in
a manner which; (a) will not adversely affect the health, safety or property
of the company employees and neighbours; (b) will not create unreasonable
or unnecessary pollution problems in the surrounding community; and
(c) will not interfere with reasonable and necessary use of public waters.
(An Oil company).
3. It is our policy to manufacture and produce useful, safe, and high-quality
products for... people around the country; adhere to good manufacturing
standards and practices; and guard against abuse or misuse of our products
(A Pharmaceutical Company).

The motives cited for formulation of such policies include: (i) assurance of
a persistent favourable climate for subsequent company activities; (ii) a desire
for positive and consistent response to social responsibility issues throughout
the company: and (iii) a need to be something that would be visible to external
and internal participants. Such as minority groups, consumer advocates,
environmentalists, and employees.
ESSENTIALS OF AN EFFECTIVE BUSINESS POLICY

For policies to be effective, they should be sound. For any business. such
policies properly elucidated and correctly understood by all concerned in it are
a pre-requisite for efficient programme designing and its effective implementation.
One expert lays down certain criteria for judging whether a business policy
is sound or otherwise. He maintains that policies to be effective, should be:
1. based on organisation objectives;

2 capable of relating objectives to functions, physical factors. and company

personnel;
3. in conformity with the accepted ethical standards of business;
4. stated in denite, understandable terms. preferably in writing;
5. stable and flexible
Business Policy
\K 9
6. sufciently comprehensive in scope;
7. complementary to co-ordinate policies:
9. supplementary to superior policies.
We would discuss the essentials of a sound business policy under the following
heads
1. Relationship to Organisation Objectives: The policies should be based
On organisation objetives, i,e..,. What purposes and objectives the business has in
View to achieve and how these can best be achieved. It should clearly reect the
pnncrples. concepts, practices and philosophies of the organisation.
Further. the policies should be capable of relating organisations objectives to
other factors. It should be noted that when a policy fails to take into account
inconsistencies between organisation objectives and personal objectives of
individuals and groups. the rm will nd itself seriously hampered in trying to
achieve its objectives then thecompany's personnel in trying to achieve theirs. For
this reason. a harmonious integration of these objectives is particularly important.
2. Simple and Easily Understandable: The policy should be stated in
denite, positive and clear understandable terms. Unambiguous statement of
policy is necessary for a clear understanding of it on the part of those affected
by it. Clarity is the essence of a good policy so that everyone in the organisation
knows what it proposes to achieve.
Clear-cut policies should minimise the number of situations in which
decisions must be based on personal Opinion and hastily collected information.
Regardless of the size of the firm. policies should be reducible to the point
where they have signicance for each individual in the organisation. Such policies
are more easily formulated and applied if they are reduced to writing.
3. Written Policies: Preferably. policies should be written so that they can
be integrated within systems and policy manuals. Henry Carl rightly observed
that A policy. conceived as a management tool, does not exist unless it is in
writing. Written policies make a commitment on the part of management.
employees and others that the tap management does what it says." They ensure -

uniformity of application. and assure continuity of action even when the t0p
management is changed. They limit the freedom of action on the part of the
management. for the foreman cannot go off half-cocked and come up' with his
personal interpretations of the organisations intent. They help to ensure tha'
professed policres are right'. for an organisation tries to put its best foot forward.
4. Stablebut not Rigid: The policy must be reasonably stable but not
rigid. Stability implies firmness and constancy. Such a stable policy inspires
condence in he minds of the employees. customers and dealers. it. should not
be altered frequently. but should be stable for a fairly long time. say ago to; :1:
Years. Frequent changes in policies often create confusion tn the mtn s :1 t :d
' Who are to follow these. The policies should be periodically revrewcd. ev uat .
assessed. and urgency of the company and changes tn the envrronmen .
modication is to be made successfully. the management must constantly1 studs:
economic trends within and outside the community. and of the effects of c 3'18
on the suitability of prices.
Flexibiiity refers to the ability to adapt to short-run changes. It should
have an in-built resilience for adjustment from time to time. An example of the
kmS-t'un change is the increase in hiring of women and minority groups. while
the short-run change would be seasonal and cyclical that might affect the hinng
of these groups for a short run.
5. Comprehensiveness: The policy should be sufciently comprehensive
in scope and should cover. as far as possible. all issues thatare of interest to the
firm: The comprehensiveness of a policy can be checked by listing the
organisations major functions and sub-functions along with its managerial
functions and sub-functions. all of which should be covered by policy statements.
If there are no policies Stated for some of these areas. a deficiency in
comprehensiveness may be said to remain in them.

6. Complementary to one another: All policies in the functional areas of

business must be complementary to one another. An example is the manufacturing
policy that complements the production policy so that these two funCtions can
be coordinated effectiVely.
7. Supplementary to overall corporate policies: Supplementary policies
add to and extend the overall organisation politics from which they are derived.
OVerall pohcies that are directed towards the achievement of economic service
objectives can be broken down into supportive policies. which can further be
separated as lowerlevel policies. A lirm's advertising policy. for example. should
supplement the overall marketing policy which. in turn. should supplement the
economic service objective. Thus. lower-level policies are supplementary to the

highest or superior level policies.

if the policies are not supplementary. there might be a conflict between the
departmental policy and the overall policy. and that would-be tantamount to
insubordination. Peter Drucker has observed; The policies of an enterprise have
to be balanced with the kind of reputation anenterprise wants to build up with
special reference to the social and human needs. objectives and values.
. 8. Consistent with Public Policy: The business policy should also be
Consistent with the public policy. tie. with the spirit ratherthen the letter of the
law. so that the inter-:ions and settled course of an organisation are appreciated
in terms of public opinion form the standpoint of national. economic and social
Justice for the employees and for the community at large.
Punci ple of consistency. for example, should be followed in the selection
mid of employees. In choosing sales people. the personnel manager should
hire indmduals who not only know the merchandise they will sell. but also have
the capability to meet customers and being at ease with them. Then all employees
should be trained in such a way that customers may receive substantially the
same tlips"! of treatment from every representative of the firm with whom they
come into contact. whether he be credit manager. salesperson. or deliveryman.
_ 9- Fair. Just and Reasonable: The policy should be fair to all. offering
equity and justice to those who are affected by it. Besides. it should be reasonable
Leo capable of being implemented.
10. Ethical Standards: The policies to be effective should be in accordance
with the accepted ethical standards of business. i.e.. they should not only avoid
what is wrong. but also what is bad or immoral". in other words. the policies
should be indicative of the intention that the business is aware of its social
responsibility towards the concerned people and the institution. .
ll. Planned Development: The business policy must be a planned
development rather then the result of opportunistic decisions on the spur the
moment. Naturally, not every problem arising form the functioning of a rm can
be foreseen or solvedlon the basis of an established policy. But though there will
usually be a very large and important area in which judgement of management
will be the only guide. yet routine activities should be carried on in a manner
specied the policy.
12. Individuality: The general business policy should lead to the
development of a clearcut character or re8ponsibility for the establishment. Having
individuality offers several competitive advantages. For one thing, it enables the
firm to build up a strong clientele whose patronage does not depend on a constant
promotional barrage. Further, it tends to reduce the vulnerability of the-rm to
direct price competition, although individuality may be acquired through a policy
of low and competitive prices.

EFFECTS OF INADEQUATE POLICIES

Business policies are inadequate to the extent that they do not meet the
requirements stated above. The effects of such inadequacies as well as of the
absence of policy. become apparent in many ways. Eventually
(i) They cause unprotable Operation and subsequent failure. _
(ii) Business mortalities attributed to insufficient capital. poor location,
overbuying and competition in many instances actually result from the
adoption of improper/faulty policies for a particular business situation or
due to lack of denite policy
Features of the Policies
(1') Policies act as guidelines to managers to resolve recurring problems.
to attain predeteirnined objectives.
(ii) Policies help the management to delegate duties to subordinates with full
confidence that these duties will be carried out strictly as per the policy
decisions.
(iii) The effective poiicies help the executives to know how others will act and
this will help them to have better co-ordination in achieving the well
formulated objectives.
(iv) Business policies are never static and are subject to alternation or
modification depending upon the business environment.
(v) Policies should be properly implemented by trained managers and executives
in right time so as to attain the results.
(vi) Clear-cut policies help the organisation to have consistency to have
consistency in execution process and also performance of the executives.
(vii) Policies deal with the nature and process of choice about the future of the
business activities. These policies are to be handled by the top level and
middle level executives.
(viii)Policies are not a set of rigid of clear-cut rules and regulations instead they
are living percepts guiding an enterprise to continue within the set pattern

of behaviour.
(ix) They are overall guides determining the direction of managerial action
subject to policy restrictions.
(x) Policies furthei cover the wide eld of product mix and market mix guiding
the enterprise as to how much and what type of products to be manufactured
and its channels of distribution.
(xi) Policies provide guidelines for subordinates and areframed to suit a specic
situation.
(xii) Policies are general statement of principles for achieving predetermined
goals through guiding actions by executives at different levels.
(xiii) Policies are muitipurpose in nature. Their functions include:
(a) avoiding ccnfusion.
(b) providing guidelines at all levels
c) enabling the enterprise to run smoothly without any hiderance.
(d) helping management to achieve maximum utilisation of human resources
and material resources.
(xiv) Policies decide the course of action for all other functional areas of
management and they act as formal agreement to be followed strictly at all
levels in the organisation before taking any decision.
(xv) Business Policies govern the planning. decision making, co-or'dination.
direction, control and other managerial functions.
IMPORTANCE OF BUSINESS POLICY
Polices flow from planning and are extremely useful connections between
goals and action. The policies are useful day-to-day guides. As a guide for making
decisions. policies provide the following advantages:
1. They tend to serve as precedents and this reduce the repetitive rethinking
of all the factors in individual decisions; they save time
2. Policies aid in coordination, if a number of individual are guided by the same
policies. they can predict more accurately the actions and decisions of others.
3. Policies provide stability in the organisation. A certainty of action is assured
even though the top management may change. The policies continue and
this continuity promotes stability in the organisation and thus diminish
frustrations of members.
4. Clear policies encourage denite individual decisions in as much as each
manager has a clear understanding of the range within which he can make
decision and thus feels less uncertain as to whether he can give answers to

subordinates without getting into trouble.

5. Because they specify routes towards selected goals. policies serve as a
standard or measuring yard for evaluating performance. The actual results
can be compared with the policies to determine how well the members of
an organisation have lived upto their professed intentions and to what extent
goals have been achieved.
6. Sound Policies help build up employee enthusiasm and loyalty for the
organisation. This is specially true when they reect established principles
of fair play and justice and when they help people to know that within an
organisation.
1. They set the pattern of behaviour and permit participants to plan with a
greater degree of condence and lead to better co-Operation.
8. Policies are control guides of delegated decision-making. ' They seek to
ensure consistency and uniformity in decisions on problems that recur frequently
and under similar. but not identical. circumstances.
9. Policies. with clarity. relevance and reasonableness. enable a rm to make
the optimum utilisation of perigee available resources and thereby bring
about an efcient level of operations because wastage is avoided.
10. Corporate Policies build up an image of the business in the eyes of the
public and this brings in more reputation. goodwill. sale and prots so that
more and more acts'of social responsibilities may be undertaken.
ll. Proper administration and implementation of policies encourage mad
in the employees so that they act with full responsibility within the framework
of the policies. This naturally improves the working environment with 800d
labour-management relations.
Policies help the rm to clarify its objectives, guide planning for future
operations. aid subordinates in reaching operating decisions. facilitate overall
coordination and control and act as yardsticks for evaluating the quality of
executive decision-making and action.
It is through policies that the organisation's objectives are achieved. better
use of resources is ensured. social responsibility is fullled in an increasing _
manner. personal satisfaction is obtained by the employees and the management
is enabled to talte useful decisions.

Since policies emanate from good plans and since the actual performance
of duties and activities depend upon some means of directing future actions.
planning and policies are closely related in the management of an organisation.
FUNCTIONS OF BUSINESS POLICY
The important functions of business policy are:
(1') Objectives of the company are dened and classied.
(ii) The planning function is done systematically.
(iii) Business policy clearly states the amount of authority that the subordinates
have. It also species the limits of the authority of the subordinates. Thus
it tightens the authority on one hand and provides initiatives to the
subordinates.
(iv) Subordinates can use the policy directives intelligently and carefully. It
also helps the managerial personnel to perform the functions of control and
co-ordination successfully.
(v) Policy acts as the main foundation for evaluation and determining the quality
of action and decisions taken by executives.
SCOPE OF BUSINESS POLICIES
Business policies are statements of directions. guidance for corporate
thinking, corporate behavirour and action. and therefore. cover a very broad area.
Such policies usually.cover an approach of a business rm to its environment in
e various challenges and problems thrown before it in particular.
Business policies are inuenced by the objectives of the business unit. its
management structure. the economic and nancial resources available to it at a
particular pomt of time. the attitude. social values and norms of the top
management. local/regional traditions. customs and practises. the industrial.
economic. scal and commercial policy of the government, the national or plant
agreements between representatives of employers. manage. employees and u
government, he policy of the sister concerns and business associations.
government regulations and control measures. public opinion and expectations
from business etc.
Therefore, the policies cover such a wide variety of subjects and are so
broad-based that every possible matter that affects the interests of any one in the
organisation, the community and the government are included in them. In fact,
business policies cover all the functional areas of business-production. marketing.
personnel and nance. These functional areas are generally covered by what
may be termed as 'major' policies. and minor policies..

Major policies pertain to the overall objectives. procedures and control

which affect the organisation as a whole. They cover. in a general way. nearly
every phase of enterprise and its products and their marketing. methods of
nancing. its organisational structure. plant locations, its personnel. and issues
demanding special top executive's consideration. such as merger of two concerns;
expansion of the existing concern and its facilities: research for nding new
processes and procedures for conducting research activities; contraction in
production or personnel; settlement of executive problems relating to promotions.
transfer, retirement; employment policies regarding women and minorities. and
introduction of computerization schemes.
Such policies are formulated at the top level and a framework is ambushed
within which the major executives t themselves to carry out the major objectives
of the business.
Minor policies. on the other hand. cover relationship in a segment of an
organisation. with considerable emphasis on details and procedures. Such policies
are the outgrowth of the major policies and preserve their unity of purpose. In fact.
the operational efciency of a rm depends. to a great extent. on the effective
implementation of minor policies.
Such policies are concerned with meeting day-to-day requirements of the
departments and are generally decided at the sectional and departmental levels.
Such policies may cover: rules of promotion (by seniority. ment or by both);
relations with dealers. agents and lines of relationship with these; leave rules;
package incentives to employees: rates of discount or cash payment: terms of
credit to be given to the dealers. rate of interest and term of credit. etc.
Business policies. thus. cover a wide range of subjects. including policies
on product-mix, market-mix. promotion-mix and policies are directly concerned
with their administration. particularly the aspects of policy formulation. policy
promulgation and its acceptance, its interpretation. its implementation. control
and feed-back and adjustments therein.
16

THE NEED FOR BUSINESS POLICIES

W
Establishing and operating a business rm is a complex activity. It involves
the coordination of numerous and varied activities requiring special knowledge
and skills on the part of promoters/sponsors.

Before a business rm comes into actual operation. the management or

proprietor must consider a variety of factors which determine its proper location
and size, the kinds and amount of equipment. fixtures, plants, machinery, building
structures. etc.. the legal form of organisation whether sole proprietorship.
partnership. company or a corporation-and the most suitable methods of
production and/or selling the product dealt in. The prospective market has to be
analysed to locate the potential customers, their nature and what kind of goods and
services they will need. when they will want then and how and where they will
wish to make their purchase. The management will also be required to search out
the sources from which nance can be obtained, the labour market from where to
recruit personnel needed for specific jobs and expertise. It must also be conversant
Willi many aspects of business such as market analysis. business law. accounting
procedures, the country's legal requirements. the means of transportation facilities
available. the nature and extent of competition in the same product and must be
able to make skilful application of such knowledge at its disposal.
But the ability to take care of the day-to-day problems involved in the
business does an in itself constitute effective management. There is a need for
a basic underlying gJide which the proprietor/manager can follow in directing
all activities toward the same goal, and by means of which the various business
operations are and can be integrated. The coordination of the various phases of
business operations is facilitated by the selection and application of policiesthose settled courses of business procedures which are designed to lead to the
attainmnet of specified objectives.
In the absence of clear cut objectives and related business policies, the
management is liable to become lost in a maze of details to the extent that the
oveall management of the business may impaired. For example, failures attibuted
to inadequate management or insufficient capital occur because the capital and
other resources and efforts of the personnel have been dissipated in inconsistent,
conflicting practice which were / are not properly related to the goals of the
business. Simlarly, managements spend much of their time and energy on details
which could conveniently be handle by the subordinates, if a proper explicit poicy is
in vogue
Policies provide a guide a framework for subordinates decisions. Strong
and clear polices encourage the delegation of the power of decisions - making.
good polices encourage the delegation of the power of decision-making.
p0 Hes Provlde a denite and clear direction by top management and at
the same. allow subordinates to make their own decisions within the clearlystated limits.
Though formulation of policies is important for business and management,
they may have certain limitations:

1. They are formulated by the top management to relive subordinates of the

necessity of rethinking about the factors upon which the policy is based. in
short. a policy eliminates thinking about repetitive matters. If subordinates
develop the habit of referring to company policy as the only reason for
their actions. they may use policies as crutches and defeat the intent of the
policies themselves.
2. Policies provide stability and direction to the action of the members of the
rm; yet, if a policy remains in existence for long after conditions have
changed, it can have the effect of retarding and hindering progress.
3, [f policies are not stated in broad and denite terms, they may tend to
encourage a subordinate to avoid responsibility for making his own decisions.
MECHANISM OF POLICY MAKING
1. Identication of the Situation: Policy generation is a complex process.
calling for the help of experts. The policies are required to be so designed as to
reect the good practices in society. The rst step in the mechanics of formulating
a policy is the identification of the situation/problem. Policy-making involves
all levels in the working organisation. The formulation of a policy is not a job
for an ivorytower specialist. The person preparing a draft of it must be thoroughly
familiar with the subject form personal experience and involvement.
2. Development of Policy: In the second stage, the draft should be given
wide publicity among all who may be expected to operate it because their
constructive criticisms and suggestions would be very valuable. Policies are
developed after a thorough discussion so that the top and the middle management
involved in their related areas of responsibility. are personally committed to
them. Developed in this manner. these policies will stand the test of time. and
will hold even under conditions of stress.
3. Dissemination of the Policy: After the policy has been formulated. tie.
set forth systematically. in clear. precise simple statements in accordance With
some principle. and rule(s) of action. it must be disseminated (announccd 0"
promulgated) to those who are responsible for its application. in some cases. the
policy is promulgated by word of mouth. sometimes at meetings and seminarsIn other situations. written memoranda. pOSled bulletins. revised POHC) manuals"
and company hand-books disseminate the policy.
4. Explanation of the Policy: In the next stage. the exact meaning of the
policy must also be cXplained (education) i. e.. the person concerned should be
explained. in clear terms. all aspects of the policy thoroughly-its purpose: contents/
components; significance; its relevance to the business environment in which it
is to be operated: the role of the persons who are to implement it; and the

elationship of the policy with the goals of the company. This education may be
iven through any or all of these techniques-elucidation. explanation. illustration.
emonstration. eXperimentation. verication. simulation. role planning and case
studies.
5. Acceptance of the Policy: Before a policy can be accepted. the company
personnel must understand the principle underlying it and its rule(s) of action.
Once the policy is operative (application). questions generally arise as to its
' specic points. These questions require interpretation by managers who have
authority over and responsibility for the policy. This interpretation gives an
opportunity to the policy-makers to modify/improve the policy. .as per the
Situation.
Then there muSt be the assurance that the policy is being adhered to as
originally formulated. A control mechanism which includes observation. periodic
reports. and complaints is requiredfControl generally helps in two ways:
(i) better utilization of different inputs of the various factors of production: and
(ii) timely detection of the undesirable deviations so that they may be corrected
promptly. This causes minimum waste of inputs and assures timely completion
of work and quality production.
6. Feedback: Finally. after a certain time. it may be necessary to know
whether the policy has been effective in the areas at which it was aimed. The
opinion. complaints. reactions. comments or suggestions are got form the person
entrusted with the implementation of the policy. Effectiveness may be judged on
the basis of quantitative measurements, such as net profits,return on equity
capital. earnings per share or rates of dividend declared. or on the basis of
qualitative measurement. such as internal consistency of the policies implemented
consistency with the external factors, appropriateness, acceptablity, and
workability.
temal consistency of the policies implemented.
In the light of the review/evaluation, the policy may be revised or necessary
adjustment made therein. in order to confirm to changed conditions operating
within and/or outside the organisation.
QUESTIONS FOR DISCUSSION
1, What is business policy? Explain its chief features.
2. Discuss purposes and essentials of an effective business policy
3. What are the effects of inadequate policies?
4. Explain the features of business policies.
5. Why policies are more important for the modern businesses?
6. Discuss the functions and scope of business policies.
7. Why should businesses need policies?
8. Explain the mechanism of procedure of making a business policy.