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Definition of business policy

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  • 1. Definition of Business PolicyBusiness Policy defines the scope or spheres within which decisions can be taken by thesubordinates in an organization. It permits the lower level management to deal with theproblems 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 dealswith acquisition of resources with which organizational goals can be achieved. Businesspolicy is the study of the roles and responsibilities of top level management, thesignificant issues affecting organizational success and the decisions affecting organizationin long-run.Definition:Business policies are guidelines-statements (guide to plans & decision making) tofacilitate predetermined objective on the mode and manner in the structural & functionalaspects to achieve the objective formulated as plans at all levels of management in thebusiness organisation.As per the definition given by Christensen et. al. and steiner and others" the study of the function and responsibilities of senior management, the crucialproblems that affect success in the total enterprise, and the decisions that determine thedirection of the organisation and shape its future.Read more: http://wiki.answers.com/Q/Definition_of_business_policy#ixzz21RS7m0ibFeatures of Business PolicyAn effective business policy must have following features- 1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult. 2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. 3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates. 4. Appropriate- Policy should be appropriate to the present organizational goal. 5. Simple- A policy should be simple and easily understood by all in the organization. 6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. 7. Flexible- Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.
  • 2. 8. 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 StrategyThe term “policy” should not be considered as synonymous to the term “strategy”. Thedifference between policy and strategy can be summarized as follows- 1. 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.Nature of Business Policyby V S Rama Rao on November 3, 2010Business policy basically deals with decisions regarding the future of an ongoing enterprise.Such policy decisions are taken at the top level after carefully evaluating the organizationalstrengths and weaknesses in terms of product price, quality, leadership position, resources etc., inrelation to its environment. Once established the policy decisions shape the future of a companychannel the available resources along desired lines and direct the energies of people working atvarious levels towards predetermined goals. In a way, business policy implies the choice ofpurposes, the shaping of organizational identity and character the continuous definition of whatis to be achieved and the deployment of resources for achieving corporate goals.Some useful definitions of Business Policy1) A business policy is an implied overall guide setting up boundaries that supply the generallimit and direction in which managerial action will take place.2) A business policy is one, which focuses attention on the strategic allocation of scarceresources. Conceptually speaking strategy is the direction of such resource allocation whileplanning is the limit of allocation3) A business policy represents the best thinking of the company management as to how theobjectives may be achieved in the prevailing economic and social conditions4) A business policy is the study of the nature and process of choice about the future ofindependent enterprises by those responsible for decisions and their implementation
  • 3. 5) The purpose of a business policy is to enable the management to relate properly theorganization’s work to its environment. Business policies are guides to action or channels tothinking.Business policies generally have a long life. They are established after a careful evaluation ofvarious internal and external factors having an impact on the firm’s market standing As andwhen circumstances change in a major way the firm is naturally forced to shift gears, rethink andreorient its policies. The World Oil crisis during the 70s has forced many manufacturers all overthe globe to reverse the existing practices and pursue a policy of manufacturing fuel efficientcars. Therefore, policies should be changed in response to changing environmental and internalsystem conditions.Types of policiesThere are many types of policies – marketing policies, financial policies, production policies,personnel policies to name a few in every organization. Within each of these areas more specificpolicies are developed. For example, personnel policies may cover recruitment, training,promotion and retirement policies. Viewed from a systems angle, policies form a hierarchy ofguides to managerial thinking. At the top of level policy statements are broad. The managementis responsible for developing and approving major comprehensive company policies. Middlemanagers usually establish less critical policies relating to the operation of their sub units.Policies tend to be more specific at lower levels. The manager’s job is to ensure the consonanceof these policies, each must contribute to the objectives of the firms and there should be noconflict between sub system policies.Although it is customary to think of policies as written statements it is not necessarily the case.For example a firm may simply decline to consider handicapped employees in the selection ofnew personnel. In effect, this becomes an effective policy even though the company has neververbalized its position.