ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY

SCHOOL OF BUSINESS AND ACCOUNTANCY

MODULE 1 INTRODUCTION TO BUSINESS POLICY

LESSON 1 BUSINESS POLICY – DEFINITION AND DISCUSSION OF CONCEPTS

OVERVIEW

Every organization has a purpose for which it was established - either for profit
making or non-profit making, and closely allied to the purpose of an organization are
the principles on which it is to be conducted. These principles in business parlance are
commonly called “Policy”. Policy, according to Kalejaye (1998), denotes a future course
of action of intent towards the activities of an organization. He opined that there is more
to the meaning of policy than an expression of intent. To him, there is usually the
connotation that policies should express the beliefs of the organization, the things that
are right to do and the courses of action which it ought to take in the organization. This
explains why policies on the same subject can be so different from one organization to
another.

Every business requires guidelines which are to be embedded in policy. Policy is

a decision rule, not a decision (Ackoff 1993). Principles in business parlance are
commonly known as policy. Policy denotes a future course of action of intent towards
the activities of an organization.

In this lesson, you will be introduced to the meaning of business policy in order
to prepare you for all the associated ideas about the concept in business management.
We shall also highlight the reasons why business policy is necessary. Finally, we shall
explain business policy implementation in an organization.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

1. Define business policy
2. State the need for business policy
3. Explain business policy implementation in organization

LEARNING FOCUS

The introductory lesson is intended to familiarize you with business policy. It

starts with a description of business policy. It starts with a description into the
development process that evolved before learners like you got the opportunity to study
this course.

Next, we shall introduce you to the nature of business policy where its definition is also
provided.

1 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

You should be convinced of the importance of the business policy course to be

motivated to learn it better. Hence, we have to be clear about the purpose and
objectives of the course that we are learning. The objectives of the course have been
described in terms of knowledge, skills and attitudes. It is essential to know what to
expect from this course and in which direction the learning objectives are likely to take
the students.

Definition of Policy

What comes to your mind when the word policy is mentioned? As stated in the
introduction earlier, policy is defined as a decision rule not a decision. For example, of a
policy- Hire only professionally qualified accountants for senior accounting positions.
When such a person is hired, it is a decision.

A policy is considered the general guideline for decision making. Kalejaye, A. (1998)
defined policy as the objectives, the mode of thought and the body of principle
underlying the activities of an organization.

According to Fagbemi (2006) a policy refers to what an organization or a person

intends to do or does. Business policy therefore is what business organization intends
to do. It aims at assisting the organization to deliver services to meet the needs and
expectations of the goals of the organization.
Policies are plans in that they are general statements or understandings that guide or
channel thinking in decision making. In actual business situation, not all policies are
“statements”; they are often merely implied from the action of managers. The president
of a company (organization), for example may strictly followperhaps for convenience
rather than as policy-the practice of promoting from within; the practice may be
interpreted as policy and carefully followed by subordinates (Weighrich & Koontz,
2005).

To be candid, it is incumbent upon the managers to ensure that subordinates do not

interpret as minor managerial decisions that are not intended to serve as patterns.

Business policy is a guide and roadmap to create awareness and direction to the
management of any organization. It publicizes the rights and obligations of different
rung of the ladder- horizontal and vertical- of the different capital be human resource
engagement, finance utilization etc. It ensures that organizations deliver better end
product within a framework. It encourages, promotes and improves performance
attainment in an organization.

2 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Policy provides the bedrock for vision and mission statement of the business
organization along the corporate objectives and goal. Policy enables the business to be
assessed and given an image by the way the carry out their responsibility along with
their relationship with their clients/customers. It is the ‘barometer’ of playing by the rule
and gives purpose to the strategy thrust of the organization.

Definition of Business

Wikipedia (2012) states that a business (also known as enterprise or firm) is an

organization engaged in the trade of goods, services, or both to consumers.
Businesses are predominant in capitalist economies, where most of them are privately
owned and administered to earn profit to increase the wealth of their owners.
Businesses may also be not-for-profit or state-owned. A business owned by multiple
individuals may be referred to as a company, although that term also has a more
precise meaning.

The etymology of "business" relates to the state of being busy either as an individual or
society as a whole, doing commercially viable and profitable work. The term "business"
has at least three usages, depending on the scope — the singular usage to mean a
particular organization; the generalized usage to refer to a particular market sector, "the
music business" and compound forms such as agribusiness; and the broadest
meaning, which encompasses all activity by the community of suppliers of goods and
services. However, the exact definition of business, like much else in the philosophy of
business, is a matter of debate and complexity of meanings.

Although forms of business ownership vary by jurisdiction, there are several common
forms:

 Sole proprietorship: A sole proprietorship is a business owned by one person

for-profit. The owner may operate the business alone or may employ others. The
owner of the business has unlimited liability for the debts incurred by the
business.

 Partnership: A partnership is a business owned by two or more people. In most

forms of partnerships, each partner has unlimited liability for the debts incurred
by the business. The three typical classifications of for-profit partnerships are
general partnerships, limited partnerships, and limited liability partnerships.

 Corporation: A corporation is a limited liability business that has a separate

legal personality from its members. Corporations can be either government-
owned or privately- owned, and corporations can organize either for-profit or not-
for-profit. A privately-owned, for-profit corporation is owned by shareholders who
elect a board of directors to direct the corporation and hire its managerial staff. A

3 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

privately-owned, for-profit corporation can be either privately held or publicly

held.

 Cooperative: Often referred to as a "co-op", a cooperative is a limited liability

business that can organize for-profit or not-for-profit. A cooperative differs from a
for-profit corporation in that it has members, as opposed to shareholders, who
share decision-making authority. Cooperatives are typically classified as either
consumer cooperatives or worker cooperatives. Cooperatives are fundamental to
the ideology of economic democracy.

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken by
the subordinates in an organization (Wikipedia, 2012). 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.

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.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty
in minds of those who look into it for guidance.

Rama Rao (2010) gave some useful definitions of Business Policy as follows:

4 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

1. A business policy is an implied overall guide setting up boundaries that supply

the general limit and direction in which managerial action will take place.
2. A business policy is one, which focuses attention on the strategic allocation of
scarce resources. Conceptually speaking strategy is the direction of such
resource allocation while planning is the limit of allocation.
3. A business policy represents the best thinking of the company management as
to how the objectives may be achieved in the prevailing economic and social
conditions.
4. A business policy is the study of the nature and process of choice about the
future of independent enterprises by those responsible for decisions and their
implementation.
5. The purpose of a business policy is to enable the management to relate properly
the organization’s work to its environment. Business policies are guides to action
or channels to thinking.

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:

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.

The main objective of business policy is performance driven which ensures delivery of
service or product depending on purpose of which the business was set up-service or
product oriented.

Business policy specific objectives ensure:

 Efficiency and effectives in performance of duties
 Equal provision of services and treatment of customers
 Better management and provision of better quality services
 The utilization and application of resources
 The formulation mission statement
 The establishment of vision of the organization

5 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Policies are always aligned with the objectives of the enterprise if it is to be effective. All
policies follow parallel courses and directly related to objectives. If they cross or oppose
objectives, collective effect is lost and disorder would prevail. Misunderstanding and
confusion are often the cause of problems and poor results rather than faults in the
stated policy (Kalejaye, 1998).

The major reasons for having policies are as follows:

Why Create Business Policies?

No matter what the size of the business, business policies can be simple to write and
implement, while adding structure to the great things you are already doing.
Specifically, business policies:
 Drive strategic planning, and help set expectations and performance objectives.
 Lead to more efficient internal operations.
 Engage and align the values of stakeholders; and build mutual understanding of
expectations and challenges.
 Ensure accountability and create transparency.
 Promote ethical and responsible decision-making.
 Assess and mitigate risk.
 Streamline new staff orientation; having established written policies that staff can
refer to creates consistency, clarity, and provides an understanding of the goals
and culture of the company.
 Result in time savings: proactively thinking about how specific situations and
issues will be handled eliminates having to discuss and debate how to handle
issues every time they come to the forefront.
 Meet legal requirements; some laws require employers to adopt certain policies
to guide the actions of their staff and management. Example:
Discrimination/Harassment Policy.

CONCLUSION

In conclusion, it is deduced that every organization including business requires a policy

as a decision rule to guides the activities and performance of the business to eventually
achieve goals and objective of the organization.

SUMMARY

In this lesson, we have made an overview of the concept ‘business policy’. The
concepts policy, business and business policy had also been respectively defined. We
have also identified the reasons for business policy. Finally, we listed and briefly
explained the objectives of a business policy.

6 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

POSTTEST

1. Define a Business Policy.

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.

2. What are main objectives of Business Policy?

 Efficiency and effectives in performance of duties

 Equal provision of services and treatment of customers
 Better management and provision of better quality services
 The utilization and application of resources
 The formulation mission statement
 The establishment of vision of the organization

3. Why does a business create policy?

No matter what the size of the business, business policies can be simple to write
and implement, while adding structure to the great things you are already doing.
Specifically, business policies:

 Drive strategic planning, and help set expectations and performance objectives.
 Lead to more efficient internal operations.
 Engage and align the values of stakeholders; and build mutual understanding of
expectations and challenges.
 Ensure accountability and create transparency.
 Promote ethical and responsible decision-making.
 Assess and mitigate risk.
 Streamline new staff orientation; having established written policies that staff can
refer to creates consistency, clarity, and provides an understanding of the goals
and culture of the company.
 Result in time savings: proactively thinking about how specific situations and
issues will be handled eliminates having to discuss and debate how to handle
issues every time they come to the forefront.

7 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

 Meet legal requirements; some laws require employers to adopt certain policies
to guide the actions of their staff and management. Example:
Discrimination/Harassment Policy.

LESSON 2 EVOLUTION OF BUSINESS POLICY AS A DISCIPLINE

OVERVIEW

In the last lesson, we gave an overview of the concept ‘business policy’. We defined the
concepts policy, business and business policy. We also identified the reasons for
business policy. Finally, we listed and briefly explained.
In this lesson, we shall trace the evolution of business policy as a discipline.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

1. trace the evolution of business policy as a discipline;
2. discuss the genesis of business policy;
3. trace the evolution of business policy based on managerial practices; 4. discuss
the historical perspective of the evolution of business policy;
5. Predict the future business policy in regard to managerial practices.

LEARNING FOCUS

Evolution of Business Policy as a Discipline

Kazmi (2006) states that business policy is a mandatory course which is usually
included in a typical management study curriculum. According to him, almost all
management education programs offered by the universities and management
institutes include business policy course (by whatever nomenclature it may be
addressed) normally in the latter part of a degree or diploma program.

The Genesis of Business Policy

Tracing the history of business policy, Kazmi (2006) stated that its can be traced back
to 1911, when the Harvard Business School introduced an integrative course in
management aimed providing general management capability. This course was based
on case studies which had been in use at the School for instructional purposes since
1908 (Christensen, et. al., 1982 cited in Kazmi, 2006). However, the real impetus for
introducing business policy in the curriculum of business schools (as management

8 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

institutes or departments are known in the Lessoned States) came with the publication
of two reports in 1959. The Gordon and Howell report, sponsored by the Ford
Foundation, had recommended a capstone course of business policy which would
“...give students an opportunity to pull together what they have learned in the separate
business fields and utilize this knowledge in analysis of complex business problems”
(Kazmi, 2006). The Pierson report, sponsored by the Carnegie Foundation, and
published simultaneously, had made a similar recommendation.

In 1969, the American Assembly of Collegiate Schools of Business), a regulatory body

for business schools, made the course of business policy a mandatory requirement for
the purpose of recognition. In the last two decades, business policy has become an
integral part of management education curriculum. The practice of including business
policy in the management curriculum has spread from the Lessoned States to other
parts of the world. The contents of the course, teaching methodology and so on vary
from institution to institution.
But basically, business policy is considered a capstone integrative course offered to
students who have already been through a set of core functional area courses. The
term “business policy” has been used traditionally though new titles such as strategic
management, corporate strategy and policy and so on are now used extensively for the
course. The discussion has so far been related to the academic status of the business
policy course. In practice, however, the development has been along different lines.

Evolution based on Managerial Practices

Kazmi, et al (2006) have viewed the development in business policy as arising from the
use of planning techniques by managers. Starting from day-to-day planning in earlier
times, managers, till recently, tried to anticipate the future through the preparation of
budgets and by using control systems like capital budgeting and management by
objectives. However, as these techniques were unable to emphasize the role of the
future adequately, long-range planning came into use. But, soon, long-range planning
was replaced by strategic planning, and later, by strategic planning - a term that is
currently being used to describe “the process of strategic decision-making”. Strategic
management forms the theoretical framework for business policy courses today.

Historical Perspective of the Evolution of Business Policy

Hofer et al., (1984) have viewed the evolution of business policy in terms of four
paradigm shifts. For the sake of convenience, these shifts may be considered as four
overlapping phases in the development of the subject, business policy. It is interesting
to note that the development of business policy, as a field of study, has closely followed
the demands of real-life business. He further the first phase which can be traced to the
mid-1930s, rested on the paradigm of ad-hoc policy-making. The need for policy-
making arose due to the nature of the American business firms of that period. The first,
which had originally commenced operations in a single product line catering to a unique

9 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

set of customers in a limited geographical area, expanded in one or all of these three
dimensions. Informal control and coordination became partially irrelevant as expansion
took place and the need to integrate functional areas arose. This integration was
brought about by framing policies to guide managerial action. Policy-making became
the prime responsibility of erstwhile entrepreneurs who later assumed the role of senior
management. Due to the increasing environmental changes in the 1930s and 40s in the
Lessoned States, planned policy formulation replaced ad-hoc policy-making. Based on
this second paradigm, the emphasis shifted to the integration of functional areas in a
rapidly changing environment.

Increasing complexity and accelerating changes in the environment made the planned
policy paradigm irrelevant since the needs of a business could no longer be served by
policy-making and functional area integration only. By the 1960s, there was a demand
for a critical look at the basic concept of business and its relationship to the
environment. The concept of strategy satisfied this requirement and the third phase,
based on a strategy paradigm, emerged in the early sixties. The current thinking -
which emerged in the eighties - is based on the fourth paradigm of strategic
management. The initial focus of strategic management was on the intersection of two
broad fields of enquiry: the strategic process of business firms and the responsibilities
of general management.

The story is far from over. As Thompson and Strickland (1984) say, the approaches
and methods of analysis of strategic management “have not yet coalesced into a
‘theory’ of how to manage an enterprise, but “they very definitely do represent a
powerful way of thinking to resolve strategic issues”.
Pointers to the Future

The resolution of strategic issues that affect the future of a business firm has been a
continual endeavor in the subject of business policy. The endeavor is based on the
development of strategic thinking. As Whitefield says “really useful training (in strategic
management should yield) .... a comprehension of a few general principles with a
thorough grounding in the way they apply to a variety of concrete details”. Most likely,
the students will forget the details and principles but “remember (usually unconsciously)
new, non-obvious ways of thinking strategically” (Kazmi, 2006). The general principles
undergirding strategic thinking have been the focus of the efforts of researchers and
academicians in the field of business policy. What, then, are these general principles?
As a first step, the model of strategic management that has developed so far, and is
under constant review, incorporates these general principles.

The direction in which strategic management is moving can be anticipated from what
(Ansoff, 1984) calls an emerging comprehensive approach of “management of
discontinuous change, which takes account of psychological, sociological, political, and
systemic characteristics of complex organizations”. With the emergence of futuristic
organizations, which, in the words of Toffler, are no longer responsible simply for

10 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

making a profit or producing goods but for simultaneously contributing to the solution of
extremely complex ecological, moral, political, racial, sexual, and social problems,”
(Toffler, 1980) the demands on business policy are expected to rise tremendously. The
general managers of tomorrow may be called upon to shoulder a set of entirely new
responsibilities necessitating a drastic review of the emerging concepts and techniques
in business policy. Responding to the need for evolving new approaches to the
teaching of business policy, the AACSB no longer insists on the provision of just one
course in this area. Now there is an emerging trend to have several courses, such as,
the theory of strategic competitive strategy, industry dynamics, hypercompetition, and
global strategy in the curriculum (Kazmi, 2006).

While reviewing the development of strategy and theory, Rumelt, Schendel and Teece
(1994) posed four fundamental questions which, in their view, characterize the major
concerns of strategic management. These four fundamental questions are:

1. How do firms behave? Or, do firms really behave like rational actors, and, if not,
what models of their behavior should be used by researchers and policy-
makers?
2. Why are firms different? Or, what sustains the heterogeneity in resources and
performance among close competitors despite competition and imitative
attempts?
3. What is the function of or the value added by the headquarters lesson in a
diversified firm? Or, what limits the scope of a firm?
4. What determines success or failure in international competition? Or, what are the
origins of success and what are their particular manifestations in international
settings or global competition?
5. In dealing with most of the issues raised by these fundamental questions, we
would need to look at what has been happening in Nigerian business scene.

CONCLUSION

We have gained familiarity with the course of business policy and strategic
management by learning about its history and its present status. We have also learnt
what to aim for in this course. The main points covered in this lesson are as follows:

SUMMARY

In this lesson, we have traced the evolution of business policy as a discipline;

discussed the genesis of business policy; traced the evolution of business policy based
on managerial practices; discussed the historical perspective of the evolution of
business policy; predicted the future business policy in regard to managerial practices.

11 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

In the next lesson, we shall examine the nature, objective and purpose of business
policy.

POSTTEST

1. Business policy is a capstone, integrative course. Explain.

Business policy is considered a capstone integrative course offered to students

who have already been through a set of core functional area courses. The term
“business policy” has been used traditionally though new titles such as strategic
management, corporate strategy and policy and so on are now used extensively
for the course. The discussion has so far been related to the academic status of
the business policy course. In practice, however, the development has been
along different lines.

2. In what direction is strategic management likely to move in the future?

The direction in which strategic management is moving can be anticipated from

what calls an emerging comprehensive approach of “management of
discontinuous change, which takes account of psychological, sociological,
political, and systemic characteristics of complex organizations”.

LESSON 3 NATURE, OBJECTIVE AND PURPOSE OF BUSINESS POLICY

OVERVIEW

In the last lesson, we gave an overview of the concept ‘business policy’. We defined the
concepts policy, business and business policy. We also identified the reasons for
business policy. Finally, we listed and briefly explained.

In this lesson, we shall trace the evolution of business policy as a discipline.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

1. state the nature of business policy;
2. highlight the importance of business policy; 3. enumerate
the purposes of business policy
4. List the objectives of business policy.

LEARNING FOCUS

12 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

The Nature of Business Policy

Before we proceed to understand the nature of business policy, let us witness these
situations, as reported in an issue of a reputed business magazine in India: ( Kazmi,
2006). Exide reaps the benefits of its strategies, which include modernization,
expansion, and acquisitions, to become the integrated leader in the battery sector.
Costly expansions and poor demand have forced JK Corp to rework its strategies. It is
now banking its future on its core paper business. This will come through the
divestment of its cement division, Laxmi Cements, and the acquisition of the Central
Pulp Mills. Tisco is using divestments and mergers to restructure its core businesses of
steel, allied industries, refractory, and engineering. Exim Bank (the Export and Import
Bank of India), established in the early eighties with the objective of extending support
to Indian exporters and importers, still remains small given the Indian economy’s
requirements. As it faces tough competition

13 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

from the scheduled commercial banks it needs a strategic vision to cope with the
increasing competition in the new millennium.

From the above reports, we can see that when a company either promotes a joint
venture, divests a part of its business, embarks upon an expansion program,
undertakes mergers and acquisitions or takes other similar actions which have a long-
term impact on its future operations and status, those are a result of senior
management decision-making. The senior management in any organization is primarily
responsible for guiding the future course of action and for providing a sense of direction.
Business policy attempts to inculcate the capability for senior management in one
toward these ends.

Kazmi (2006), defined business policy is “the study of the function and responsibilities of
senior management, the crucial 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, the molding of organizational identify 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”.

This comprehensive definition covers many aspects of business policy. Firstly, it is

considered as the study of the functions and responsibilities of the senior management
related to those organizational problems which affect the success of the total enterprise.
Secondly, it deals with the determination of the future course of action that an
organization has to adopt. Thirdly, it involves a choosing the purpose and defining what
needs to be done in order to mold the character and identity of an organization. Lastly, it
is also concerned with the mobilization of resources, which will help the organization to
achieve its goals.

The senior management consists of those managers who are primarily responsible for
long-term decisions, and who carry designations, such as, Chief Executive Officer,
President, General Manager, or Executive Director. These are persons who are not
concerned with the day-to-day problems but are expected to devote their time and
energy to thinking and deciding about the future course of action. With its concern for
the determination of the future course of action, business policy lays down a long-term
plan, which the organization then follows. While deciding about a future course of
action, the senior management are confronted with a wide array of decisions and
actions that could possibly be taken. The senior management exercises a choice, on
the basis of given circumstances, and which, in their opinion, would lead the
organization in a specific direction. By moving in a predetermined direction, an
organization can attain its planned identity and character.

The Importance of Business Policy

14 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Kazmi (2006) opined that business policy is important as a course in the management
curriculum and as a component of executive development programs for middle-level
managers who are preparing to move up to the senior management level. A study of
business policy fulfills the needs of management students as well as those of middle-
level managers. To highlight the importance of business policy, we shall consider four
areas where this course proves to be beneficial.

Learning the Course

Business policy seeks to integrate the 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 real-life businesses. In
contrast, the functional area courses are based on a structured, specialized and well-
developed body of knowledge, resulting from a simplification of the complex overall
tasks and responsibilities of the management.

To develop a theoretical structure of its own, business policy cuts across the narrow
functional boundaries and draws upon a variety of sources - other courses in the
management curriculum and a wide variety of disciplines, like economics, sociology,
psychology, political science, and so on. In so doing, business policy offers a very broad
perspective to its students.

Business policy makes the study and practice of management more meaningful as one
can view business decision-making in its proper perspective. For instance, in the
context of business policy, a short-term gain for a department or a sub-lesson is willingly
sacrificed in the interest of the long-term benefit that may accrue to the organization as
a whole.

Understanding the Business Environment

Regardless of the level of management a person belongs to, business policy helps to
create an understanding of how policies are formulated. This helps in creating an
appreciation of the complexities of the environment that the senior management faces
in 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 management makes the task of policy
implementation simpler. When they become capable of relating environmental changes
to policy changes within an organization managers feel themselves to be a part of a
greater design. This helps to reduce their feeling of isolation.

15 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Understanding the Organization

Business policy presents a basic framework for understanding strategic decision-

making while a person is at the middle level of management. Such a framework,
combined with the experience gained while working in a specialized functional area,
enables a person to make preparations for handling general management
responsibilities. This benefits the organization in a variety of ways.

Business policy, like most other areas of management, brings the benefit of years of
distilled experience in strategic decision-making to the organization and also to its
managers. Case study - which is the most common pedagogical tool in business policy -
provides illustrations of real- life business strategy formulation and implementation. An
understanding of business policy may also lead to an improvement in job performance.
As a middle-level manager, a person is enabled to understand the linkage between the
different sub-lessons of an organization and how a particular sub-lesson fits into the
overall picture. This has farreaching implications for managerial functions like
coordination and communication, and also for the avoidance of inter-departmental
conflicts.

Personal Development

A study of business policy offers considerable scope for personal development. It is a

fact of organizational life that the different sub-lessons within an organization have a
varying value and importance at different times. It often happens that a company which
has followed a production- orientation as a matter of policy gradually shifts emphasis to
marketing may be due to increasing competition. In the changed situation, executives
within the production departments have fewer opportunities for career advancement as
compared to their colleagues in marketing. In this case, 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. In extreme cases, many positions may become redundant due to
policy shifts and retrenchment is inevitable. Business India cautions executives,
especially those who work for multinationals. It says “ persons who have devoted their
lives working for one company suddenly find bewildering changes at head offices in the
UK and US”, and adds that reorganization and changes at the top level can have a
dramatic impact on individuals. “It is only too common for divisions of a company to be
shut down worldwide or to be sold off to another company”. 22 An understanding of
business policy 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 business policy provides an adequate

grounding for understanding the macro factors and their impact at the micro level. By
gaining an understanding of such an impact, an executive is better placed to identify the
growth areas. For instance, in the current business situation in India, a career in the

16 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

computer industry, especially in software, would offer better personal growth

opportunities than, say, the steel industry. Business policy offers a unique perspective
to executives to understand the senior management’s viewpoint. With such an
understanding the chances that a proposal made by or an action taken by an executive
will be appreciated by senior managers is decidedly better.

An interesting by-product of the business policy course is the theoretical framework

provided in the form of the strategic management model. The applicability of this model
is not limited to businesses alone. It can be applied to organizations like, services,
educational institutions, family, government, public administration, and to many other
areas. In fact, the model provides powerful insights for dealing with policy-making at the
macro level as well as at an individual level through self-analysis. The importance of
business policy stems from the fact that it offers advantages to an executive from
multiple sources. Apart from the intangible benefits, an executive gains an
understanding of the business environment and the organization he or she works in.
such an understanding can help considerably in career planning and development.

The Purpose of Business Policy

‘Business policy’ is a term associated with the integrated management course, which is
generally studied in the latter part of the degree or diploma, and is preceded by the
study of functional area courses in finance, marketing, operations and personnel
(Kazmi, 2006). A business policy course seeks to integrate the knowledge gained in
various functional areas so as to develop a generalist approach in management
students. Such an approach is helpful in viewing organizational problems in their
totality. It can also create awareness about the repercussions that an action taken in
one area of management can have on other areas individually, and on the organization
as a whole.

The viewpoint adopted in business policy is different from that adopted in the functional
area courses. For instance, a marketing problem is not viewed purely as a problem of
‘marketing’ but as an organizational problem. A course in business policy helps in
understanding a business as a system consisting of a number of sub-systems. Any
action taken in one sub-system has an impact on other sub-systems, and on the system
as a whole. It is of vital importance for the top management in any organization to adopt
such a systems approach to decision-making. Business policy helps a manager to
become a generalist by avoiding the narrow perspective generally adopted by the
specialists, and to deal with business problems from the viewpoint of the senior
management.

The problem of declining sales volume is apparently a marketing problem. However, an

analysis of the problem will show that its roots may probably lie anywhere in the
organization. Declining sales volume may be due to a rising level of competition,
inefficient distribution, faulty sales promotion, inappropriate recruitment policies,

17 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

misdirected training, inadequate sales promotion, limited commission to sales

personnel, falling quality standards, a decrease in the variety of products offered,
outdated design, underutilization of capacity, demotivating credit policies and so on. a
problem, which apparently seems to be a marketing problem, may be due to factors not
necessarily within the control of the marketing department. A solution to the problem
would necessitate transgressing the artificial boundaries between the functional areas,
each of which is looked after by a team of specialists. These specialists, due to their
background, training and, possibly, loyalty to their disciplines are unaware and ill-
equipped to deal with all the problems in entirety. They may come up with short-term
solutions but these are only like first-aid to a victim when a thorough diagnosis and
treatment is required to mitigate the misery. A generalist, on the other hand, is better
qualified to deal with organizational problems and can come up with solutions that will
have a lasting effect. On the basis of the above discussion, we can say that the purpose
of business policy is three-fold:

1. to integrate the knowledge gained in various functional areas of management;

2. to adopt a generalist approach to problem-solving, and
3. to understand the complex interlinkages operating within an organization through
the use of a systems approach to decision-making and relating these to the
changes taking place in the external environment.

In order to make the study of business policy purposeful, specific objectives need to be
defined, which we shall do in the next section.

Objectives of Business Policy

It is essential that we should first state the objectives of business policy and only then
proceed further. The objectives of business policy have been stated in terms of
knowledge, skills and attitudes which could be derived from the purpose of business
policy.

Knowledge

1. The learners of business policy have to understand the various concepts

involved. Many of these concepts, like, strategy, policies, plans, and programs
are encountered in the functional area courses too. It is imperative to understand
these concepts specifically in the context of business policy.
2. A knowledge of the external and internal environment and how it affects the
functioning of an organization is vital to an understanding of business policy.
Through the tools of analysis and diagnosis, a learner can understand the
environment in which a firm operates.

18 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

3. Information about the environment helps in the determination of the mission,

objectives, and strategies of a firm. The learner appreciates the manner in which
strategy is formulated.
4. The implementation of strategy is a complex issue and is invariably the most
difficult part of strategic management. Through the knowledge gained from
business policy, the learner will be able to visualize how the implementation of
strategic management can take place.
5. To learn that the problems in real-life business are unique and so are the
solutions is an enlightening experience for the learners. The knowledge
component of such an experience stresses the general approach to be adopted
in problem-solving and decision-making. With a generalized approach, it is
possible to deal with a wide variety of situations. The development of this
approach is an important objective to be achieved in terms of knowledge.
6. To survey the literature and learn about the research taking place in the field of
business policy is also an important knowledge objective.

Skills

1. The attainment of knowledge should lead to the development of skills so as to be

able to apply that which has been learnt. Such an application can take place by
an analysis of case studies and their interpretation, and by an analysis of the
business events taking place around us.
2. The study of business policy should enable a student to develop analytical ability
and use it to understand the situation in a given case or incident.
3. Further, the study of business policy should lead to the skill of identifying the
factors relevant in decision-making. The analysis of the strengths and
weaknesses of an organization, the threats and opportunities present in the
environment, and the suggestion of appropriate strategies and policies form the
core content of general management decision-making.
4. The above objectives, in terms of skills, increase the mental ability of the learners
and enable them to link theory with practice. Such an ability is important in
managerial decision-making where a large number of factors have to be
considered at once to suggest appropriate action.
5. As a part of business policy study, case analysis leads to the development of oral
as well as written communication skills.

Attitude

1. The attainment of the knowledge and skill objectives should lead to the
inculcation of an appropriate attitude among the learners. The most important
attitude developed through this course is that of a generalist. The generalist
attitude enables the learners to approach and assess a situation from all possible
angles.

19 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

2. By acting in a comprehensive manner, a generalist is able to function under

conditions of partial ignorance by using his or her judgement and intuition.
Typically, case studies provide only a glimpse of the overall situation and a case
analyst frequently faces the frustrating situation of working with less than the
required information. Experience has shown that managers, specially in the area
of long-range planning, have to work with incomplete information. A specialist
would tend to postpone or avoid a decision under such conditions but a
generalist would go ahead with whatever information was available. In this way,
he or she acts more like a practitioners rather than a perfectionist.
3. For a general manager information and suggestions are important to possess a
liberal attitude and be receptive to new ideas. Dogmatism with regard to
techniques should be replaced with a practical approach to decision-making for
problem-solving. In this way, a general manager can act like a professional
manager.
4. It is important to have the attitude to ‘go beyond and think’ when faced with a
problematic situation. Developing a creative and innovative attitude is the
hallmark of a general manager who refuses to be bound by precedents and
stereotyped decisions.

An Alternative Viewpoint on the Objectives of Business Policy Course

Anisya S. Thomas of Florida International University says that the fundamental

objectives of the capstone business policy course have remained relatively stable over
a long period of time. There is broad agreement among textbook writers and instructors
that these objectives encompass content as well as process dimensions, that is, they
deal with the core concepts and theories and also seek to teach an analytical process
that incorporates multiple perspectives.

More specifically, these objectives are as below:

1. Integration of functionally specific knowledge. Business policy acts as an

integrative, capstone course demonstrating the interdependence between
separate functional areas, such as marketing, finance, and so on.
2. Understanding the ‘big picture’. Communicating the appreciation of the synergy
created by managing the interdependence among the functional areas is a critical
objective of business policy. A general management perspective aids in exposing
the student to the tradeoffs involved in achieving superior performance by
balancing the internal competencies with the external requirements.

3. Working in, managing, and leading a team. Working with and managing a diverse
and flexible team is a critical priority with the corporate recruiters. (Interestingly, a
similar view is expressed on the basis of surveys conducted by the Indian
business magazines too.) Business policy tries to build up the teamwork spirit by

20 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

illustrating the finer aspects of group dynamics and by bringing together students
from different specialization areas.
4. Enhancement of comprehension and communication skills. Business policy lays
great emphasis on allowing students to be active participants in the learning
process. In contrast to the functional courses, there is a stress on using
methodologies, such as case discussions, and oral and written presentations and
reports.
5. Ability to assess the applicability and relevance of strategic management
research (theory to practice). Theoretical advances in the field of business policy
are taking place rapidly. It is necessary for the students to evaluate the relative
merit and applicability of theoretical advances to deal with the rapid
environmental and strategic changes that characterize the business arena. So it
is imperative that the students not just learn but also learn how to learn (Kazmi,
2006).

Having looked at the above alternative view of the objectives of business policy course,
you will be in a position to gain further insight into the issue. The objective business
policy, in terms of knowledge, skills and attitude could be further extended to the areas
of behavior and performance. After having attained knowledge of the objectives in the
classroom, or in an executive development program, the learner is expected to exhibit
appropriate behavior and good performance on the job. The structure of business
policy, built through the accumulation of experience as one moves up the managerial
ladder. The richness and variety of experience gained as one moves up the managerial
ladder in business offers opportunities of testing, validating, and replicating the mental
images and models learnt in the business policy course. Such an approach imparts an
added impetus to the development of general management capability which is the sine
qua non for a manager who wishes to succeed in his or her job and make a meaningful
contribution to the organization he or she works for.

CONCLUSION

An attempt has been made to understand the nature of business policy through a
definition and its explanation. The nature of business policy deals with studying the
functions and responsibilities of the senior management. These involve setting the
future course of action by defining the purpose of an organization and the likely shape
that it should take in the future. The senior management is also concerned with the
resources necessary to help the organization achieve its goals.

SUMMARY

In this lesson, we have stated the nature of business policy; highlighted the importance
of business policy; enumerated the purposes of business policy and listed the
objectives of business policy. In the next lesson, we shall examine the characteristics of
business policy.

21 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

POSTTEST

1. What are the different aspects of the nature of business policy? Discuss each one
of them with the help of suitable examples.

1. It is considered as the study of the functions and responsibilities of the senior

management related to those organizational problems which affect the success
of the total enterprise.
2. It deals with the determination of the future course of action that an
organization has to adopt.
3. It involves a choosing the purpose and defining what needs to be done in order
to mold the character and identity of an organization.
4. It is also concerned with the mobilization of resources, which will help the
organization to achieve its goals.

2. What are the objectives set for a business policy course in terms of knowledge,
skills and attitudes?

Knowledge

1. The learners of business policy have to understand the various concepts

involved. Many of these concepts, like, strategy, policies, plans, and programs
are encountered in the functional area courses too. It is imperative to understand
these concepts specifically in the context of business policy.
2. A knowledge of the external and internal environment and how it affects the
functioning of an organization is vital to an understanding of business policy.
Through the tools of analysis and diagnosis, a learner can understand the
environment in which a firm operates.
3. Information about the environment helps in the determination of the mission,
objectives, and strategies of a firm. The learner appreciates the manner in which
strategy is formulated.
4. The implementation of strategy is a complex issue and is invariably the most
difficult part of strategic management. Through the knowledge gained from
business policy, the learner will be able to visualize how the implementation of
strategic management can take place.
5. To learn that the problems in real-life business are unique and so are the
solutions is an enlightening experience for the learners. The knowledge
component of such an experience stresses the general approach to be adopted
in problem-solving and decision-making. With a generalized approach, it is

22 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

possible to deal with a wide variety of situations. The development of this

approach is an important objective to be achieved in terms of knowledge.
6. To survey the literature and learn about the research taking place in the field of
business policy is also an important knowledge objective.

Skills

1. The attainment of knowledge should lead to the development of skills so as to be

able to apply that which has been learnt. Such an application can take place by
an analysis of case studies and their interpretation, and by an analysis of the
business events taking place around us.
2. The study of business policy should enable a student to develop analytical ability
and use it to understand the situation in a given case or incident.
3. Further, the study of business policy should lead to the skill of identifying the
factors relevant in decision-making. The analysis of the strengths and
weaknesses of an organization, the threats and opportunities present in the
environment, and the suggestion of appropriate strategies and policies form the
core content of general management decision-making.
4. The above objectives, in terms of skills, increase the mental ability of the learners
and enable them to link theory with practice. Such an ability is important in
managerial decision-making where a large number of factors have to be
considered at once to suggest appropriate action.
5. As a part of business policy study, case analysis leads to the development of oral
as well as written communication skills.

Attitude

1. The attainment of the knowledge and skill objectives should lead to the
inculcation of an appropriate attitude among the learners. The most important
attitude developed through this course is that of a generalist. The generalist
attitude enables the learners to approach and assess a situation from all possible
angles.
2. By acting in a comprehensive manner, a generalist is able to function under
conditions of partial ignorance by using his or her judgement and intuition.
Typically, case studies provide only a glimpse of the overall situation and a case
analyst frequently faces the frustrating situation of working with less than the
required information. Experience has shown that managers, specially in the area
of long-range planning, have to work with incomplete information. A specialist
would tend to postpone or avoid a decision under such conditions but a
generalist would go ahead with whatever information was available. In this way,
he or she acts more like a practitioners rather than a perfectionist.
3. For a general manager information and suggestions are important to possess a
liberal attitude and be receptive to new ideas. Dogmatism with regard to
techniques should be replaced with a practical approach to decision-making for

23 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

problem-solving. In this way, a general manager can act like a professional

manager.
4. It is important to have the attitude to ‘go beyond and think’ when faced with a
problematic situation. Developing a creative and innovative attitude is the
hallmark of a general manager who refuses to be bound by precedents and
stereotyped decisions.

LESSON 4 CHARACTERISTICS OF BUSINESS POLICY

OVERVIEW

In this lesson, we shall continue with the discussion on overview of business policy. This
discussion will center on the nature and characteristics of policy, reasons for formulating
policies, and formulation of policy. The policy thrust of an organization solely depends
on the type of business offered - whether it is for production or services; the intensity of
needs of operation and quality of human resources to be employed. It provides
guidance to achieving objectives and goals of organizations.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

a. explain the characteristics of policy;
b. list and discuss the sources of a policy;
c. State the features that make a good policy.

LEARNING FOCUS

Most organizations produce statements and explanations on what they are trying to
achieve in particular areas. Policies are subdivided and stated in terms of procedures
i.e. series of related steps or tasks expressed in a chronological order, and rules i.e.
prescribed course of actions that explicitly state what are to be done under a given sets
of circumstances. Many organizations provide parameters within which decisions must
be made. Some of these will be written by specialists in different operational areas, like
employment matters which may focus on hiring and firing, sales and marketing
departments may provide guidelines of pricing and credit facilities; purchasing
department policies may prohibit gifts from suppliers. Some policies focus on
materials/stock and others on capital and equipment. Some describe objectives and
others means.

24 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

In general, policies may be classified in relation to personnel, capital, objectives, means

and specific organizational areas. This is an arbitrary but convenient way to classify
policies. It should be noted that these categories are not mutually exclusive but
frequently overlap.

Characteristics of Policy

Sound policies usually contain a combination of the following characteristics:

1. Destiny
2. Top Management Approval and Commitment
3. Intellectual Input
4. Consistency and Long-term in Nature
5. Acceptability
6. Communicated to Staff
7. Genuine Intention and Application
8. Balanced Interpretation
9. Alignment with Objective

 Destiny - A common characteristic of policy is that it denotes future action and

intent. It usually describes a goal or destiny which is there to be achieved. In
addition, it implies a conviction in a set of beliefs which is considered “right” for
the people in the organization. The manner a policy is expressed and the detailed
procedures which stem from it all point in the same direction and do not allow
individual actions to follow a different direction. If the actual procedures and
wording do not imply belief in a course of action, then it is probably a wrongly
formulated policy.

 Top Management Approval and Commitment - In practice, making

contributions and recommendations on policy issues may be the function at the
lower levels of management in the organization, but it is the hallmark of policy
that it is approved and endorsed by the top management. This may be Board of
Directors and Managing Director or the responsibility may be delegated to a top
executive committee. Directors and top managers are primarily responsible for
policy making and setting long-term objectives. Once the series of policies are
approved at the top, there is every possibility that all segments of the
organization will move to the same direction toward the set objectives.
 Intellectual Input - Policy requires a high level of intellectual and intelligent
inputs because policies are concerned about the future activities deemed to be
just and right for the organization. Policies must be able to withstand pressures,
opposition and challenges from all parts of the organization and its environment
which may see and treat the policies differently. Without a high degree of
thorough analysis and deep thought of reasoning during formation, a policy may

25 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

be less effective and may even fail to provide the framework for enduring
decision making.

 Consistency and Long-term in Nature - Usually, policy makers have thought

through all aspects of a particular policy culminating into consistent and enduring
policy thereby making frequent amendments difficult. Constant changes in the
course of action and direction of an organization will surely bring about confusion,
resenting and even generally derail all things that sound policies are trying to
achieve. Practically, almost all policies are long-term in nature, although for
practical purposes; long-term policies are sub-divided into short-term.

It is worthy of note that there could be circumstances in which refinement and

revision might be required; in essence, they are intended to create a continuum
against which day-to-day standards and decisions can be made.

 Acceptability - The degree of acceptance of organization policy to everyone is

marked by the persistence and understanding of employees who want to know
why the policy is made or changed. Genuine reasons must be forthcoming and
management needs to provide supervisors with sufficient information to satisfy
queries regarding a policy. There is danger in withholding information which often
leads to gossip and speculation in an organization as this can be disorganizing,
cause increased friction between management and employees, upset and strain
relationships through general suspicion and mistrust.

 Communicated to Staff - As soon as policies are formulated and ratified, they

should be communicated to members of the organization. Everybody must be
aware about the mission and objectives of the organization; hence, there should
be no exception in communicating policies to the members of the organization.
Appropriate channels must be used in channeling policies throughout the
organization, so that nobody is left out. This, of course, will cement relationship in
the organization and motivate the staff to reach higher heights.

 Genuine Intention and Application - It is not uncommon for management to

declare policy for prestige purposes, such as publicity and then fail to put the
policy into practice. Management’s intention, in these circumstances, is to ignore
and dump the declared policies.

In some cases, some managers apply policies in wrong and negative ways,
hiding under one excuse or the other for not carrying out some course of action.
These types of policies are rarely put into writing and where it is in written form;
they are usually wrongly worded in such vague manners that will distort to fit in
with any course of genuine action at the line. These types of policies must be
avoided; every policy of the management must be treated with all the

26 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

seriousness it deserves and must be genuinely applied to the intended course of

action.

 Balanced Interpretation - While correctly interpreting policies, managers do

rigidly conform to principles and procedures without due regard for the human
elements of the organization and emerging pressing issues. Something more
than correctness is required in human society and ever changing complex
environment; all these factors, when weighed carefully, might well provide a more
balanced interpretation which would relegate to the background the narrow
correct ones. A little of flexibility to accommodate the emerging factors and
balanced interpretation of policies are the real art of managing and supervising
which cannot be attributable to abuse of policy.

 Alignment with Objective - All policies must follow parallel courses of action
which are directly related to objectives. If they cross or oppose objectives,
collective effect is lost and disorder would prevail. Misunderstanding and
confusion are often the cause of problems and poor results rather than faults in
the stated policy. these identified dangers highlight the need for careful checking
of ambiguity in policy so as to avoid misunderstanding especially at the lower
level of management hierarchy.

Sources of Policy

Kalejaye (1998) examined the major sources of policies and classified them as
originated, appealed, implied and externally-imposed. These are explained as follows:

1. Originated Source - The most acclaimed source of policies is the one from top
management which originates for the express purpose of guiding the company’s
operations. Originated policies flow basically from the objectives of the
enterprise, as they are defined by top executive authority. These types of policies
may be broad in scope, allowing key subordinates to give them clearer definition
or they might be promulgated so completely and comprehensively as to leave
little room for definition or interpretation.

2. Appealed Source - In practice, in most cases, policies stem from appeal through
the hierarchical level of management authority. If occasion for decision arises for
executives who do not know whether they have sufficient authority or how such
matters should be handled, they appeal to their supervisors for the necessary
support and action. As appeals are taken upward and decisions are made on
them, a kind of rules and procedures are established. Precedent, therefore,
develops and becomes guides for future managerial action and serves as
reference point.

27 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

3. Implied Source - Useful policies are developed from the actions which
employees see about them and believe to constitute them. Employees will readily
understand what real policy is if they work for a company that operate policies
that produce high quality goals, or sound labor policy, for instance, though the
real policy is implied.

4. Externally-imposed Source - To a large extent, policies are externally-imposed

by such agencies as the government, trade unions, professional associations and
others like trade association. This might come in form of direct regulation or one
of the many conditions of accepting government aid or contract; it could also be
to maintain industrial peace. Besides, local and state governments, professional
associations, social and charitable organizations do influence the policies of
organizations.

What Makes a Good Policy

Wikipedia (2012) states that company policies are most effective as official written
documents. While policies often differ in form depending on company size, industry, and
length of time in business, policy documents generally contain certain standard
components including:

 Purpose Statement, outlining why the organization is issuing the policy, and
what the desired effect or outcome of the policy is.

 Specifications, including statements indicating the specific regulations,

requirements, and organizational behavior that the policy is creating.

 Implementation section, indicating which parties is responsible for carrying out

individual policy statements and how policy adherence will be ensured.

 Effective Date, which indicates when the policy is considered in force (an
executive signature or endorsement can be useful to legitimize the policy).

 Applicability and Scope Statement, describing whom the policy affects and
which actions are impacted by the policy.

 Background, indicating any reasons, history, and intent that led to the creation
of the policy, which may be listed as motivating factors.

 Definitions, providing clear definitions for terms and concepts found in the policy
document.

28 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

CONCLUSION

You will note from the discussion in this lesson that policies are subdivided and stated in
terms of procedures. For instance, it contains series of related steps or tasks expressed
in a chronological order, and rules.

SUMMARY

In this lesson, we describe the nature and characteristics of a policy and the sources of
a policy. We also listed the attributes of a good policy.

In the next lesson, we shall discuss the third part of overview on business policy which
would extensively dwell on the types of policies, uses of policies for management
effectiveness, integration and relationship of policies to objectives, reasons for
formulating policies and the role of workers in policy formulation.

POSTTEST

1. What are the characteristics of a policy? List some of them and explain them
briefly.

2. Briefly explain the four major sources of policies that you know of.

3. What makes a good policy? List them and briefly explain.

4. Sound policies usually contain some features or characteristics. List these

features and briefly explain them.

5. Briefly explain the nature of a policy.

LESSON 5 TYPES/KINDS OF POLICIES

OVERVIEW

29 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

In the last lesson, we describe the characteristics of a policy and the sources of a policy.
We also listed the attributes of a good policy.

In this lesson, we shall discuss the third and final part of the overview on business
policy which would extensively dwell on the types of policies, uses of policies for
management effectiveness, integration and relationship of policies to objectives,
reasons for formulating policies and the role of workers in policy formulation.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

1. describe how policies are formulated;
2. list the types of Policy
3. enumerate the reasons for formulating policies;
4. highlight the uses of polices for management effectiveness;
5. explain how policies are integrated in relation to objectives;
6. itemize management policy areas;
7. State the role of workers in policy formulation.

LEARNING FOCUS

Business 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
organizational strengths and weaknesses in terms of product price, quality, leadership
position, resources etc., in relation to its environment. Once established the policy
decisions shape the future of a company channel the available resources along desired
lines and direct the energies of people working at various levels toward predetermined
goals. In a way, business policy implies the choice of purposes, the shaping of
organizational identity and character the continuous definition of what is to be achieved
and the deployment of resources for achieving corporate goals.

Business policies generally have a long life. They are established after a careful
evaluation of various internal and external factors having an impact on the firm’s market
standing as and when circumstances change in a major way the firm is naturally forced
to shift gears, rethink and reorient its policies. The World Oil crisis during the 70s has
forced many manufacturers all over the globe tom reverse the existing practices and
pursue a policy of manufacturing fuel efficient cars Therefore, policies should be
changed in response to changing environmental and internal system conditions.

Formulation of Policy

30 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

The studies or theories in which purposeful organizations formulate policies represent a

scholarly pursuit which has been carried on for years by management theorists. These
scholars have observed and analyzed the decision-making action of managers of
business and other organizations as they determined the direction and course of their
respective organizations.

To influence policy thinking in an organization is one of the important goals of an

executive as he develops his career. The greater an executive’s influence on policy, the
greater is his contribution and the higher his status among fellow executives. This, in
part, is what contributes to the difference and respect generally accorded a company’s
chief executive. His thinking is all centered on policy issues and as you will note all
policies are crucial to the survival, health and success of an enterprise.

Policy decisions rest fundamentally on human judgement and intuition. Some policies
evolve informally over a long period of time without conscious or selective formulation.
They have their origin in slowly developing customs, traditions and attitudes. Others are
formulated quickly, because the situation requires rapid implementation. Both types may
originate at the top levels in the organization and work their way down; they may also
arise in a given area and remain in that area; or they may start at lower levels and
permeate upward. In general, policies should be formulated by those in organization
who have the responsibility for accomplishing the particular objectives to which the
policies relate.

Policies from Top to Bottom

Some policies cut across all functional areas of the organization. Many are so
interrelated with all area of operations that their significance can best be understood by
the top level management. Policies that originate from the top arise out of broad, basic
needs perceived and defined by the top managers. In large corporations today, for
instance, the Chief Accountant is an important contributor to advance planning and
policy formulation. Complex taxes, new accounting procedures, mergers,
computerization, insurance, pensions, investment options and appraisal, profit sharing,
and depreciation of assets and other many cost implication corporate issues cause the
Chief Accountant to become involved in areas that are broad than strictly finance.

General policies or corporate policies affecting all areas of operation usually originate
from the top management. Descending levels in the organization structure will be
guided by these policies when formulating more limited policies at their own levels.

Policies within Functional Areas of Departments

Those in charge of functional areas, and/or departments are generally involved in

establishing policies for those areas. Marketing executives formulate marketing policies,
purchasing executive formulate purchasing policies; personnel managers formulate

31 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

personnel policies, etc. These are operational policies proposed and formulated at
functional areas and departmental levels. Managers must be consistent and operate
within corporate policy guidelines while formulating policies at these levels. Policy
established within functional areas may influence the formulation of policy in other
functional areas as well as the strategies developed to pursue those policies.

Policies from Bottom to the Top

There are lots of advantages and wisdom in inviting supervisors and other operating
personnel to participate in developing and implementing policies. Whenever possible,
non-management employees should have a voice in policy matters that will directly
affect them or their work. This kind of “Participative Management” engenders good
human relations. It gives the managers a chance to hear from the workers reactions to
subject policies and to accommodate them, but also to give the workers the
opportunities to gratify deep seated needs for recognition and influence on the group’s
functioning. Also, by participating in policy making, a worker develops a managerial
perspective and a tendency to consider the enterprise as a whole, thereby contributing
to its success.

One important thing to note in the above arrangement is that policies and suggestions
which may originate at or near the bottom of an organization and which may be useful
never get to the top except through strong influential pressures. If the higher level
management is receptive to ideas, feelings and attitudes of those below, they will derive
valuable policy inputs from them. The openness of upward communication and the use
of participative management method can do much to generate upward policy
formulation process.

In general, it is advisable that managers review all policies periodically, as some might
have outgrown their original purpose or usefulness. They should not be glorified and
perpetuated merely because they are policies, rather, they should be modified or
replaced when circumstances call for such a change. Once a policy has been adopted
or modified, it should be communicated to all affected by it. It is advisable to
communicate policy statements at all levels in writing and to maintain a policy file that is
accessible to everyone. Persons expected to conform to a policy have a right to know
that such a policy exists, the purpose of that policy and why it was formulated.

Since policy formulation is not a guess work, certain definite steps are stipulated to be
followed by decision makers when formulating new policies or modifying the existing
ones. These are (Kalejaye, 1998):

1. Carefully study the organization’s objectives.

2. Identify the need for a policy in a given area.

32 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

3. Source for and collect all possible and relevant information for the policy
formulation. 4. Consideration must be given to all alternatives especially as they
relate to the policy.
5. Analyze all possible available outcomes.
6. Select the best policy statement so far made taking into consideration its possible
outcome.
7. Review the policy statement with the employees and others who will be affected
by its application.
8. Ensure the policy is in line with the other existing policies of the organization.
9. Draw out the final policy statement including the effective dates of such a policy.

Types of Policies

The type of organization influences the type of policies muted out for compliance. The
regulations which guide decisions which guide decisions and actions vary considerably
and cut across the hierarchical structure of the organization depending on the nature
and magnitude of objective. There 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 specific policies are developed. For
example, personnel policies may cover recruitment training promotion and retirement
policies. Viewed from a systems angle, policies form a hierarchy of guides to
managerial thinking. At the top of level policy statements are broad. The management is
responsible for developing and approving major comprehensive company policies.
Middle managers usually establish less critical policies relating to the operation of their
sub lessons. Policies tend to be more specific at lower levels. The manager’s job is to
ensure the consonance of these policies, each must contribute to the objectives of the
firms and there should be no conflict 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 of new personnel. In effect, this becomes an effective policy even though the
company has never verbalized its position.

There are many types of policies. Examples include:

 hiring university-trained engineers;

 encouraging employees’ suggestions for improved cooperation;
 promoting from within, conforming strictly to a high standards of business ethics;
 setting competitive prices; and
 insisting on fixed, rather than cost-plus, pricing.

Hicks and Gullett (1985) expressed the opinion that every operating area ranging from
sales, procurement, manufacturing, personnel (human resources) and finance need a

33 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

hierarchy of supporting policies to drive the business. This move enhances policies as
guide to decision define the boundaries within the organization and they direct decisions
toward accomplishing objectives thereof. In the progression from objectives to policies
to procedures to rules, the limits become increasingly narrow.

Steiner (1969) stated that the regulations which guide decisions and actions very
considerably and cut across the hierarchical structure of the organization depend on the
nature and magnitude of mission to be accomplished. He therefore developed a
pyramid to demonstrate the relationship among various types of business policies will
be used as a model as discussed below:

Major Policies

Major policies are formulated at the top of the organization and relate to the
company’s main purpose. They provide guide line pertaining to such things as
the line of business and ethical conduct of organization.

Secondary or Corporate Policies

These policies are broad and general policies formulated at the upper levels of
management of the organization. These policies apply to the entire organization
and deal with business facets such as the selection of major products and
services and the selection of marketing areas. Much of the information generated
in the proper formulation of major policies can be used in determining secondary
policies, which are more specific than major policies.

Figure 3.1 Steiner’s Pyramid of Business Policies

34 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Source: Steiner. G. (1969) Top management planning. McMillan, New

York

Functional Policies

These deal with specific functional areas of the organization. They involve
policies that specifically related to marketing production, finance, and other
functional areas. For instance, the ABC Transport Company will accept customer
exchanges or returns made within one month after purchase is an example of
functional policy related to marketing.

Minor Policies

They are subordinate to functional policies and define in details such matters as
maintenance of equipment, schedules, plant layout, absenteeism etc.

35 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Procedure

This is a series of related steps or related steps or tasks expressed in

chronological order to achieve a specified purpose. Procedure defines in step-by-
step fashions the method by which policies are achieved. They outline precisely
the manner in which an activity must be accomplished. Procedure generally
permits little flexibility and deviation.

Rules

This is a statement of what may, must or must not be done in a situation or when
playing a game. It explains in a lucid manner what an employee should do or is
advised to do in a situation. You can also describe rules as the habits, the normal
state of things, or what is true in most cases. Finally, a rule is a statement of what
is possible according to a particular system. Rules permit the use of discretion in
performing a task.

Business policies

Business policies are sets of rules followed by a store or group of stores that define
business processes, industry practices, and the scope and characteristics of a store's or
group of stores' offerings. They are the central source and reference template for all
allowed and supported practices within a store or group of stores.

In WebSphere Commerce, business policies are enforced with a combination of one or

more business policy commands that implement the rules of the business policy. Each
business policy command is a Java class. A business policy command can be shared
by multiple business policies. The behavior of the business policy command is
determined by the parameters passed to the command.

Parameters affecting the function of a business policy command can be introduced in

three places:

 the contract term and condition referencing the business policy 

the business policy definition
 The business policy command itself.

The business policy definition may specify a set of parameters that are automatically fed
into each invocation of any of commands associated with the policy. A business policy
command may specify additional parameters when it is invoked. Finally, a contract term

36 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

and condition may prove extra parameters for a business command unique to the term
and condition.

Business policy commands for the same type of business policy must have the same
interface. The following categories of business policies are provided in Web Sphere
Commerce:

Catalog business policies

Catalog business policies define the scope and characteristics of the catalog of
products for sale in a store including prices and the categorization of products in
a store's catalog.

Payment business policies

Invoicing, payment, and refund business policies define how a store accepts
payments, pays refunds, and the format of a store's invoices. Returns business
policies

Returns business policies define if refunds are accepted, the period they are
accepted for, and any re-stocking fees applied to returns.

Shipping business policies

Shipping business policies define the shipping providers a store can use and the
charges associated with each type.

Referral interface business policies

Referral interface business policies define the relationship between a proxy store
and a remote store. Many contract terms and conditions reference business
policies. This provides a measure of control over the nature of contracts a store
enters into while still providing flexibility in creating the contract terms and
conditions. There are several types of Business policies being followed in the
Business Environment.

Business policies may be of the following types:

1. External Policies

Policies framed to give effect to the decisions of the Government, judiciary, trade
associations and such other external forces are what are called external policies. For
example, under the Income-Tax Act, every employer is bound to deduct tax from the

37 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

salary payable to the employees every month. Similarly, the Government requires
certain number of jobs to be reserved for the backward sections of the society. To give
effect to such orders, policies may be formulated at the enterprise level.

2. Internal Policies

Policies formulated to give effect to certain decisions taken by the owners of a business
establishment are what are called internal policies. For example, it may be the policy of
a certain private sector organization to appoint certain categories of workers purely on
contract basis. Similarly, a business organization may adopt a policy to produce only for
the foreign market.

3. Appealed Policies

Such policies are formulated to give effect to the suggestions of the staff of an
organization. For example, the employees may make an appeal to the top management
to give employment to an eligible member of an employee’s family after the latter’s
retirement. If such a proposal is acceptable to the management, the same may be
announced as a policy.

4. Explicit Policies

Those policies of an organization that are stated outwardly are called explicit policies.
Such policies form part of the organization manual. Most of the policies of an
organization are explicit in nature. The sales policy, credit policy, etc., may be cited as
examples.

5. Implicit Policies

These policies are not stated outwardly. For Example, every organization follows certain
policy for the recruitment of employees. Such a policy is not usually stated explicitly.
Even the existing employees may not be aware of it.

Reasons for Formulating Policies

Many professionally managed businesses acknowledged that it is necessary to have

policies in all the major functional areas of management. The focus areas will thus
include production policy, purchasing policy, marketing policy, selling and promotional
policy, etc. All these policies are expected to give support to the overall objectives of the
organization as defined by the top management and they complement each other.

The major reasons for having policies are as follows:

38 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

1. It is impossible and wrong to rely on expediency or precedents to solve problems

which arise intervally or regularly. To that extent, decision-making is more
consistent and detailed when policy is defined and known.
2. Policy provides continuity for the organization. They are more permanent than
the individuals who are employed and later leave for greener pastures or are
sacked; thereby providing an enduring foundation for continuity.
3. They help to facilitate expansion and integration of new businesses into the
company so that when growth occurs, there is already a firm foundation policy to
apply in the new situation.
4. They provide a yardstick with which to measure progress in the organization. For
example, policy on issue of stock items - stipulating that no condition on which
stock should be issued on verbal instruction. This may not be achievable
instantly, but it sets a standard against which progress can be measured as the
policy is implemented.
5. They stimulate action, because managers and supervisors have the knowledge
and confidence to make decisions and take actions knowing fully well that they
are following the laid down policies.
6. Policies also save management time because the information is available and the
procedures for carrying them out are known. This, of course, assumes that the
policies are made freely available to those who require them.
7. They promote fairness in treating employee matters; provided the policies take
account of the needs of the entire organization and are interpreted consistently.
8. Policies serve as bases for the defense of the various organization actions and
activities in the event of challenges and litigation in the court of law.

Uses of Policies for Management Effectiveness

Policies are of great importance to every organization as they are used to establish
stable institution, create identity, shape planning and boost the organization’s image and
acceptability by the public. Kalejaye (1998) itemized the various uses of policies as
follows:

1. Policies are used in preventing deviation from planned course of action by

providing definite guide to follow. They provide the communication channels
between organizational lessons thus facilitating the delegation process.

2. Policies provide a conceptual framework within which other plans can be

established to form a balanced and coordinated structure of plans. Since they
serve as guide to further action, the existing policies relieve managers of the
necessity to ask superiors for permission to do or not to do certain things. As long

39 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

as managers are conforming to the organization’s policies, they can safely

proceed and use their own initiatives.

3. Through policies, closer coordination and cooperation can be promoted among

the organization elements. Closer coordination and easier delegation will permit a
greater degree of decentralization within the organization.

4. Employees are more likely to take action and voluntarily assume greater
responsibility when they are aware of organizational policies. If the personnel are
confident that their actions are consistent with organizational policies, they are
more likely to take actions than do nothing.

5. Definiteness and flexibility are both desirable to goals attainment, but calculating
the tradeoff lies the problem. In certain cases, decisions are too trivial to require
policy and at the other extreme, decisions may be too important to rule; hence, in
between these extremes, there is need for policies to save time and increase the
speed of decision making.

6. To the subordinates, policies will not only serve as means of exercising

authorities, it also lay down the guidelines that define and limit the exercise of the
subordinates’ authorities and responsibilities.

7. Policies under-guide the planning of a future course of actions. They show the
way the future plans and activities of an organization are formulated and
implemented.

8. Policies define and clarify the objectives and goals of an organization. They give
a further definition on how the objectives of the organization can be
accomplished.

9. Policies are particularly necessary at lower levels where relationship between

actions and objectives are most of the time vaguely articulated. Policies are used
to bridge the gap - ensuring that staff actions are consistent with the broad
policies and actions of others in the organization. If this were not done by
policies, every action will have to be approved, putting an impossible
communications burden on coordinating supervisors.

10. Policies are used to mold and project the image of the organization before the
interest groups such as shareholders, suppliers, customers, employees and the
public in general. The reputation that a company enjoys, whether favorable or
otherwise, is frequently linked to the way the outsider perceives the company
through its policy structure. It is common to hear people making statement such

40 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

as “the firm is known to be liberal in its credit policy or the policy dictates positive
attitude towards employees”.

Integration and Relationship of Policies to Objectives

Policies are general statements specifying how objectives are to be accomplished; they
stem directly from organization’s objectives and can be no better than the objectives
set. Organizational objectives and policies are not mutually exclusive components of the
management process. Rather, the relationship between policy and objective is that they
are highly interdependent and inseparable. The two are interlocked and interrelated;
and while objective defines standard of what the organization should accomplish, policy
directs action towards the attainment of the standard set by the objective.

It is not possible to attain objectives without knowing the policy guidelines that must be
followed. Similarly, strategies cannot be determined without first knowing the objectives
to be pursued and the policies to be followed. Rogers (1973) provided the basis for the
above analogy which demonstrates the interdependence among objectives, policies
and strategies.

Figure 3.2 Relationships between Objectives, Policies and Strategies

Source: Rogers, D.C.D. (1973). Corporate Strategy and Long Range Planning, Ann
Arbor Mich, The Landis Press, p. 18.

The above sketch indicates a situation where the boat is going up a river. The
surrounding terrains represent the organizational purpose, and the surroundings
terrains that influence the general flow and direction of the river. The primary objective
is the harbor or stopping point of some distance up the river to be reached by a certain
time. Organizational objectives and other subordinate goals and plans can be

41 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

represented by other milestones between the boat’s present position and the harbor.
Policies are the river bank that directs and guides the boat towards the harbor. Like the
river bank, policies remain the effect, after the primary objectives had been reached.
They are independent of time and must be reviewed as to acceptability and consistency
whenever objectives are set. By all indications, it has been established that policies and
objectives are related and that one leads to another. Policies serve as guide that
provide direction and vision to managers in decision making. With articulated and
purposive policies, managers can make decisions with some assurance that the
decisions are likely to make the organization’s corporate objective realizable within the
stipulated time.

Management Policy Areas

Management policy areas are very extensive; some of the specified principal areas are
as discussed below:

Organization: The organization has to develop policies for itself. Such policies have to
do with defining the appropriate departments, jobs, ranks within the organization and
interrelationships in line with the corporate objectives of the organization.

Administration: Administrative policies of the organization are formulated with a view

to ensuring that there is effective leadership, direction and supervision at all levels and
divisions of the organization.

Unions: The policy statements are set out to maintain appropriate relationships with
management. Between the organization and unions/labor movement, they also space
out the procedure for negotiating conditions of service and settling of industrial disputes.

Control: Policies on control are essential in organization because they facilitate and
pave way for the attainment of organizational goals by maintaining appropriate
standards of tasks, personal and group performance.

Training and Development: This category of policies is formulated to guide the top
management in providing programs designed to meet organization needs, individual
needs an career requirements of managers and employees.

Incentive: This involves developing appropriate incentives to motivate employees and

managers alike in order to ensure efficient performance.

Public Relations: The policy here guides in providing adequate and appropriate
attention to public attitudes and reactions to policies and practices of the organization.

Political Action: This policy expresses the position or attitude of the organization on
political issues and events. Policy statement in this regard may restrain employees from

42 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

talking to the press on political issues or even discuss political matters within the
organization.

The Role of Workers in Policy Formulation

The concept of workers’ participation in management policy formulation has always

been controversial. The principal perspectives in which workers’ participation in
management policy may be seen as:

1. Workers participation is viewed as a means of advancing the interest of workers;

2. Workers participation is a way of distributing power within the enterprise more

equally and in handling conflicts of interest by democratic procedure otherwise
known as industrial democracy.
3. By involving workers in policy formulation, this will bring about effective utilization
of the human resources of the enterprise.
4. Workers participation in management policy is in effect seen as the antidote
towards uncooperative attitudes and increase in industrial conflicts.

CONCLUSION

From the discussions in this lesson, it can be deduced that every organization, whether
business or nonbusiness, requires a policy as a decision rule to guide the activities and
performance of the business to eventually achieve goals and objective of the
organization.

SUMMARY

In this lesson, we have, described how policies are formulated; listed the types of
Policy; enumerated the reasons for formulating policies; highlighted the uses of polices
for management effectiveness; explained how policies are integrated in relation to
objectives; itemized management policy areas andstated the role of workers in policy
formulation.

POSTTEST

1. List the steps required for formulating a new policy or review an existing policy.

2. What is the main characteristic of functional policy?

43 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

3. Itemize the reasons why policies are formulated.

4. What is the relationship between objectives, policies and strategies?

5. State the uses of policies and explain them.

6. Discuss extensively the relationship between policy and objectives.

7. Identify the various areas in which policies can be directed or addressed in an

organization.

LESSON 6 ORGANIZATIONAL POLICIES

OVERVIEW

In the last lesson, we described how policies are formulated; listed the types of Policy;
enumerated the reasons for formulating policies; highlighted the uses of polices for
management effectiveness; explained how policies are integrated in relation to
objectives; itemized management policy areas; stated the role of workers in policy
formulation.

In the next lesson, you will be introduced to yet another topic known as organizational
policies.

LEARNING OBJECTIVES

At the end of this lesson, you should be to:

1. explain the meaning of organization;

2. discuss the purpose of organizational policies; 3.
differentiate between objectives and policies.

LEARNING FOCUS

Abdullahi (2009) stated that corporate organizations operate within the ambit of the
necessary guides which are normally the organizational procedures and regulations for
effectiveness and efficiency. Basically, policies incorporate all the necessary operational
procedures and regulations of an organization. Therefore, all the operational activities of

44 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

an organization are circumscribed within the ambit of organizational policy. Hence, the
issue of organizational policy cannot be compromised. All organizations must operate
with policy as it is normally formulated for the good of healthy operations and
interrelationships among the various subsystems of the organization. In this lesson of
the study material, therefore, the discussion is on organizational policy.

Meaning of Organizational Policy

According to Pearce II and Robinson Jr. (1998, cited in Abdullahi, 2009), policies are
specific guides for operating managers and their subordinates. Policies are powerful
tools for strategy implementation and control once they are clearly linked to operating
strategies and long-term objectives. In the opinion of Thompson Jr. and Strickland
(1987, quoted in Abdullahi, 2009), policies are directives designed to guide the thinking,
decisions, and actions of managers and their subordinates in implementing an
organization’s strategy. Policies provide guidelines for establishing and controlling
ongoing operations in a manner consistent with the firm’s strategic objectives. Often
referred to as standard operating procedures, policies serve to increase managerial
effectiveness by standardizing many routine decisions and controlling the discretion of
managers and subordinates in implementing operational strategies. Logically, policies
should be derived from functional strategies (and, in some instances, from corporate or
business strategies) with the key purpose of aiding in strategy execution. In essence, a
policy is a guideline for organizational action and the implementation of goals and
objectives. Policy is translated into rules, plans and procedures; it relates to all activities
of the organization, and to all levels of the organization. Clearly stated, policy can help
reinforce the main functions of the organization, make for consistency and reduce
dependence on the actions of individual managers.

Policy clarifies roles and responsibilities of managers and other members of staff and
provides guidelines for managerial behavior. Securing agreement to a new or revised
policy can help overcome reliance on outdated practices and aid the introduction of
organizational change. Policy provides guiding principles for areas of decision-making
and delegation, for example, specific decisions relating to personnel policy may be to:
give priority to promotion from within the organization; enforce retirement at government
pensionable age; employ only graduate or professionally qualified accountants and
permit line managers, in consultation with the personnel manager, to appoint staff up to
a given salary/wage level. Some policy decisions are directly influenced by external
factors, for example, government legislation on equal opportunities.

Nature of Organizational Policy

Policies in their nature can vary in their level of strategic significance. Some, such as
travel reimbursement procedures, are really work rules that are not necessarily linked to
the implementation of a specific strategy. A policy, for instance, couched that
requirement that every location invest a certain percent of gross revenue in local

45 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

advertising are virtually functional strategies. Policies can also be externally imposed or
internally derived depending on the ownership interest. Policies regarding equality of
opportunity practices are often developed in compliance with external (government)
requirements. In the same vein, some organizational policies regarding leasing or
depreciation may be strongly influenced by current tax regulations. Regardless of the
origin, formality, and nature of the policy, the key point to bear in mind is the valuable
role policies can play in strategy implementation. In utmost consideration, the carefully
constructed policies enhance strategy implementation in several ways. Obviously, it is
imperative to examine existing policies and ensure the existence of policies necessary
to guide and control operating activities consistent with current business and functional
strategies. Ensuring communication of specific policies will help overcome resistance to
strategic change and foster greater organizational commitment for successful strategy
implementation.

On the basis of the organization’s ideology of philosophy, the goals of the organization
are translated into objectives and policy. Terminology and use of the two terms vary but
objectives are seen here as the ‘what’, and policy as the ‘how’, ‘where’ and ‘when’ - the
means that follow the objectives.

The Purpose of Policies

According to Abdullahi, (2009), policies are designed to communicate specific guides to

decisions. They are designed to control and reinforce the implementation of functional
strategies and the grand strategy, and they fulfill this role in several ways such as
discussed below:

1. Policies establish indirect control over independent action by making a clear

statement about how things are now to be done. By limiting discretion, policies in
effecting control decisions and the conduct of activities without direct intervention
by top management.

2. Policies promote uniform handling of similar activities. This facilitates

coordination of work tasks and helps reduce friction arising from favoritism,
discrimination, and disparate handling of common functions.

3. Policies ensure quicker decisions by standardizing answers to previously

answered questions that would otherwise recur and be pushed up the
management hierarchy again and again.

4. Policies help institutionalize basic aspects of organization behavior. This

minimizes conflicting practices and establishes consistent patterns of action in
terms of how organizational members attempt to make the strategy work.

46 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

5. Policies reduce uncertainty in repetitive and day-to-day decision making, there

providing a necessary foundation for coordinated, efficient efforts.

6. Policies can counteract resistance to or rejection of chosen strategies by

organization members. When major strategic change is undertaken,
unambiguous operating policies help clarify what is expected and facilitate
acceptance, particularly when operating managers participate in policy
development.

7. Policies offer a predetermined answer to routine problems, giving managers

more time to cope with non-routine matters; dealing with ordinary and
extraordinary problems is greatly expedited - the former by referring to
established policy and the latter by drawing on a portion of the manager’s time.

8. Policies afford managers a mechanism for avoiding hasty and ill-conceived

decisions in changing operations. Prevailing policy can always be used as a
reason for not yielding to emotion-based, expedient, or temporarily valid
arguments for altering procedures and practices.

9. A policy can either in writing and documented or implied. In other words, policies
may be written and formal or unwritten and informal. The positive reasons for
informal, unwritten policies are usually associated with some strategic need for
competitive secrecy. Some unwritten policies, such as “consultation with the
employees”, are widely known (or expected) by employees and implicitly
sanctioned by management. On the contrary, unwritten, informal policies may be
contrary to the long-term success of a strategy. Still, managers and employees
often like the latitude “granted” when policies are unwritten and informal.

There are inherent advantages in the use of formal written policies such as follows:

1. Managers are required to think through the policy’s meaning, content, and
intended use.
2. The policy is explicit so misunderstandings are reduced.
3. Equitable and consistent treatment of problems is more likely.
4. Unalterable transmission of policies is ensured.
5. Authorization or sanction of the policy is more clearly communicated, which can
be helpful in many cases.
6. A convenient and authoritative reference can be supplied to all concerned with
the policy.
7. Indirect control and organization-wide coordination, key purposes of policies, are
systematically enhanced.

47 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Distinction between Objectives and Policy

While objectives set out more specifically the goals of the organization; the aims to be
achieved and the desired end-results, policy is developed within the framework of
objectives. It provides the basis for decisionmaking and the course of action to follow in
order to achieve objectives. The relationship between the organization, its objectives
and management is espoused as one of the managerial duties of an organization,
which it is to ensure that the human and material organization is consistent with the
objective, resources and requirements of the concern. The established objectives and
policy therefore constitute an integral part of the process of management and a
necessary function in every organization. The objectives of an organization are related
to the input-conversion-output cycle. In order to achieve its objectives and satisfy its
goals, the organization buys inputs from the environment, through a series of activities
transforms or converts these inputs into outputs and returns them to the environment as
inputs to the systems. The organization operates within a dynamic setting and success
in achieving its goals will be influenced by a multiplicity of interactions with the
environment.

Regardless of the type of organization under consideration, there is need for lines of
direction through the establishment of objectives and determination of policy. Objectives
and policy form a basis for the process of management. The choice of objectives is an
essential part of the decision-making process including future courses of action.
Objectives may be set out either in general terms or in more specific terms. General
objectives are determined by top management. Specific objectives are formulated within
the scope of general objectives and usually have more defined areas of application and
time limits.

Objectives may be just implicit but the formal, explicit definition of objectives will help
highlight the activities which the organization needs to undertake as the comparative
importance of its various functions. An explicit statement of objectives may assist
communications and reduce misunderstandings, and provide more meaningful criteria
for evaluating organizational performance. However, objectives should not be stated in
such a way that they detract from the recognition of possible new opportunities,
potential danger areas, the initiative of staff or the need for innovation or change.
Objectives emphasize aims and are stated as expectations, but policies emphasize
rules and are stated in the form of directives. In terms distinction between objectives
and policy, the figure below is very relevant.

Personnel Good Labor Relations Set Up and Maintenance Schemes for Joint
Consultation, Job Evaluation, Wage Incentives

48 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

Source: Daft, Richard (2009). Strategy Formulation and Implementation (Management

6th Edition) p.26

Objectives and policy together provide corporate guidelines for the operation and
management of the organization. The activities of the organization derive the
significance from the contribution they make to achieving objectives in the manner
directed. The formulation of objectives and policy, and the allocation of resources,
provide the basis for strategic planning which is the first stage in the planning and
control processes of business organizations.

CONCLUSION

In this lesson, we have discussed that policies are directives designed to guide the
thinking, decisions and actions of managers in implementing an organization’s strategy.
You have observed from the analysis that policies provide guidelines for establishing
and controlling ongoing operations in a manner consistent with the firm’s strategic
objectives.

We also discussed that policies are interrelated with objectives because the former is
normally designed to pursue and achieve the latter. Lastly, we have also discussed that
there are fundamental differences between policies and objectives particularly in
business functional areas.

49 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

SUMMARY

In this lesson, the topics discussed include the meaning of organizational policy; nature
of organizational policy; the purpose of policies, and distinctions between objectives and
policy.
In the next study lesson, you will be taken through the discussion on organizational
policy.

POSTTEST

1. Explain the term ‘organizational policy’.

2. What are the reasons for the formulation of organizational policies?

3. Differentiate between policy and objective in business functional areas.

LESSON 7 FUNCTIONS AND RESPONSIBILITIES OF BUSINESS POLICY IN MANAGEMENT

OVERVIEW

In the last lesson, we defined organizational policy; described the nature of

organizational policy; state the purpose of policies, and distinguished between
objectives and policy.

In this lesson, you will be taken through the discussion on organizational policy.

LEARNING OBJECTIVES

At the end of this lesson, you should be able to:

1. Discuss business policy as they relate to different organizations;

2. Enumerate the function of Business policy in management; 3.
Discuss the responsibility of Business policy in management.

Business Policy in different Organizations

Hicks & Gullett (1985) stated that once goals have been established, a top-level
manager consider the numerous ways in which this goal could be accomplished. In the
progression from objectives to policies to procedures to rules, the limits become

50 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

increasingly narrow. Rules are specific statements what should and what should not be
done.
Dividend policy is another area in which management can affect the financing structure
of the company and examine whether changing dividend policy could perhaps add
value.

In Lesson 1 it was stated that policies are general statements that guide decision
making. Thus, a business organization requires policy as an added out-standing plan of
organization. There are policies in different organizations depending if it is service or
product oriented.

Policies in each of these operational areas will be formulated. For example, in personnel
numerous policies would be established to provide consistent guides to action. Areas
might include securing, selecting, training and compensating employees. Working
conditions, employee services and industrial relations also might be considered.

Business policies generally have a long life. They are established after a careful
evaluation of various internal and external factors having an impact on the firm’s market
standing. As and when circumstances change in a major way the firm is naturally forced
to shift gears, rethink and reorient its policies. The World Oil crisis during the 70s has
forced many manufacturers all over the globe to reverse the existing practices and
pursue a policy of manufacturing fuel efficient cars. Therefore, policies should be
changed in response to changing environmental and internal system conditions.

There 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 specific policies are developed. For example, personnel policies may cover
recruitment training promotion and retirement policies. Viewed from a systems angle,
policies form a hierarchy of guides to managerial thinking (Rama Rao, 2010). At the top
of level policy statements are broad. The management is responsible for developing
and approving major comprehensive company policies. Middle managers usually
establish less critical policies relating to the operation of their sub lessons. Policies tend
to be more specific at lower levels. The manager’s job is to ensure the consonance of
these policies, each must contribute to the objectives of the firms and there should be
no conflict between sub system policies.

Many professionally managed companies acknowledge the fact that it is necessary to

have policies in all the major functional areas of management (Kalejaye, 1998).

The focus areas will thus include: Production policy - Purchasing policy - Financial
policy -Marketing policy - Credit policy - Selling and promotion policy - etc.

All these policies are expected to give support to overall objectives of the organization
as defined by the top management and they complement each other. Although it is

51 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

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
of new personnel. In effect, this becomes an effective policy even though the company
has never verbalized its position.

Business Policy and Implementation in Organization

Business policies define areas within which decisions are made and ensure that
decision will be consistent with and contribute to an objective. For visionary
management, policies help decide issues before they become problems, make it
unnecessary to analyze the same situation every time it occurs and unify other plan
thus permitting managers to delegate authority and still maintain control over what their
subordinate do (Weighrich & Koontz, 2005). The fabric of our lives is held together by
organizations. Managers and organization go together hand in hand, hence establishing
the need for managers in organization. They are there to make wise decisions through
dependable standing plans leading to the development of policies, procedures and
rules.

Managerial Functions and Policy Implementation

The basic management functions are planning, organization, motivation and controlling.

Planning develops objectives for each level of organization and how to achieve those
objectives. Strategies, policies, procedures, methods and budgets are examples of
plans that help to accomplish objectives

Organizing is also necessary as it takes place when work is divided among

departments and among individuals.

Motivating is in working with people in order to create conditions that encourage

employees to do a good job.

Controlling measures the results of activities, compares them against predetermined

objectives and takes corrective action if necessary.

These functions are made workable by established policy depending on the business
thrust of the organization

Business Policy - Issues, Challenges and Solutions

Business policy issues are basically that of decision making to achieve set goals and
objectives. The challenges gyrate around overcoming obstacles and giving solutions.

52 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

The role of Business policy in providing solution in a going concern matters so much in
an organization.

The implementation policy depends on the type of organization and the service
rendered. Policy comes to form one of the structures of organization. It follows
procedures, rules, programs, budgets etc. All these gear to give policy reliable focus.
Every organization including business requires a policy as a decision rule to guide the
activities and performance of the business to eventually achieve goals and objective of
the organization.

Policy Implementation

 Set up a committee/working group. Setting up and engaging the correct people to

devise (and oversee) the policy is essential to the success of the planning and
implementation.
 Consult stakeholders. Consult employees, board, and other stakeholders who will
be affected by the policy about policy inclusions, how the policy will be
implemented, and assistance offered etc. throughout the development and
implementation stages. This can be done via surveys/questionnaires, emails and
team meetings.
 Devise draft policy (see recommended policy content above). Circulate. Revise.
 Have policies reviewed for legal accuracy. You may want to have policies
reviewed to make sure they are not requiring or prohibiting something that would
violate the law.
 If a board of directors or advisory board exists, do a board vote.
 Set policy implementation date. Once the policy has been amended and agreed
upon, designate an implementation date, sign, and then promote.
 Monitor and review. The staff responsible for monitoring the policy must ensure
adherence to the policy. It is good practice to review the policy at two yearly
intervals.
 Consider creating & distributing a Policy Manual. Keeping all of your policies in
one place makes them easy to refer to and review. Copies should be provided to
all members of an organization, along with applicable stakeholders.

CONCLUSION

We discussed business policy in different organizations. We noted that a business

organization requires policy as an added out-standing plan of organization. We also
noted that there are policies in different organizations depending if it is service or
product oriented and that policies in each of these operational areas will be formulated
along the various functions of management and how they relate to implementation of
business policy in an organization. Finally, we discussed issues, challenges as solutions
as they affect business policy.

53 | Page
ALDERSGATE COLLEGE BUSINESS POLICY & STRATEGY
SCHOOL OF BUSINESS AND ACCOUNTANCY

SUMMARY

In this lesson, we have discussed business policy as they relate to different

organizations; enumerated the function of Business policy in management and
discussed the responsibility of Business policy in management.

POSTTEST

1. Give examples of business policy.

2. In what way(s) does the function of management relate to implementation of

business policy in an organization?

3. Policy comes to form one of the structures of organization. Discuss.

54 | Page