Definition of 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. 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 longrun.
Features of Business Policy
!n effective business policy must have following features
". Specific- Policy should be specific#definite. If it is uncertain, then the
implementation will become difficult.
$. Clear- Policy must be unambiguous. It should avoid use of %argons
and connotations. There should be no misunderstandings in following
the policy.
&. Reliable/Uniform- Policy must be uniform enough so that it can be
efficiently followed by the subordinates.
'. Appropriate- Policy should be appropriate to the present
organizational goal.
(. Simple- ! policy should be simple and easily understood by all in the
organization.
). Inclusive/Comprehensive- In order to have a wide scope, a policy
must be comprehensive.
*. Fleible- Policy should be fle+ible in operation#application. This does
not imply that a policy should be altered always, but it should be wide
in scope so as to ensure that the line managers use them in
repetitive#routine scenarios.
,. Stable- Policy should be stable else it will lead to indecisiveness and
uncertainty in minds of those who look into it for guidance.
Difference bet!een Policy an" Strate#y
The term -policy. should not be considered as synonymous to the term
-strategy.. The "ifference bet!een policy an" strate#y can be
summarized as follows
". Policy is a blueprint of the organizational activities which are
repetitive#routine in nature. /hile strategy is concerned with those
organizational decisions which have not been dealt#faced before in
same form.
$. Policy formulation is responsibility of top level management. /hile
strategy formulation is basically done by middle level management.
&. Policy deals with routine#daily activities essential for effective and
efficient running of an organization. /hile strategy deals with
strategic decisions.
'. Policy is concerned with both thought and actions. /hile strategy is
concerned mostly with action.
(. ! policy is what is, or what is not done. /hile a strategy is the
methodology used to achieve a target as prescribed by a policy.
Business o!ner$s policy
0rom /ikipedia, the free encyclopedia
! business o!ner%s policy 1also businessowner2s policy, business
owners policy or B3P4 is a special type of commercial insurance designed
for small and mediumsized businesses.
5"6
By bundling general liability
insurance and property insurance into a single policy, B3Ps typically offer a
reduced premium, often making them a more costeffective option than
separately purchased policies.
5$6
7pecific coverage included in a business owner2s policy varies among
insurance providers, but most policies require that businesses meet
eligibility criteria to qualify.
Contents
" 7tandard 8overage
$ 9+clusions : 3ptional 8overages
& 9ligibility
' ;eferences
Stan"ar" Covera#e
! typical business owner2s policy includes property and liability insurance.
The property insurance portion of a B3P is available most often as named
peril coverage, which provides compensation only for damage caused by
events specifically listed in the policy 1typically fire, e+plosion, wind
damage, vandalism, smoke damage, etc.4.
5&6
7ome B3Ps offer openperil
or -allrisk. coverage< this option is available from the -special. B3P form
rather than the -standard..
5'6
Types of property covered by a B3P usually
include=
Buil"in#s= 3wned or rented business premises, additions and
additions in progress, outdoor fi+tures.
Personal business property= !ny items owned by the business or
business owner or owned by a third party but kept temporarily in the
care, custody or control of the business or business owner. To be
covered by a B3P, business property must be stored or kept in
specified pro+imity of business premises 1e.g., within ">> feet of the
premises4.
5'6
In addition, many business owner2s policies include business interruption
insurance as part of their property coverage. Business interruption
insurance provides up to "$ months2 income for covered businesses when
they are forced to shut down operations because of a covered property
event.
The liability portion of a business owner2s policy offers coverage for third
parties who suffer bodily in%ury, property damage, advertising in%ury or
personal in%ury on a covered business2s premises or caused by the
business2s owner or employees.
5(6
This coverage typically takes the form of
compensation for legal fees related to thirdparty lawsuits over such
incidents 1including lawyers2 fees, settlements and court costs4. In addition,
B3P liability coverage may include compensation for medical e+penses
that result from an in%ury to a third party on a covered business2s premises
for up to one year after the incident occurs.
5'6
In addition to standard
coverages, most insurance providers offer optional additions or
endorsements on business owner2s policies that business owners can use
to tailor a policy to their specific needs.
&clusions ' (ptional Covera#es
Business owner2s policies do not include the following types of insurance=
5(6
?iquor liability insurance for businesses that sell or manufacture
alcohol.
Professional liability insurance
/orkers2 compensation
@ealth insurance
Aisability insurance
!uto insurance
Bany insurance companies offer businesses the option to customize a
B3P based on specific coverage needs. 3ptional property endorsements
that can be added to a B3P include coverage for certain crimes, spoilage
of merchandise, computer equipment, mechanical breakdown, forgery and
fidelity bond, but the coverage limits for these inclusions are typically low.
5)6
Definition
". -Competitive a"vanta#e means superior performance relative to
other competitors in the same industry or superior performance
relative to the industry average..
$. -It can mean anything that an organization does better compared to
its competitors..
Definition of $Competitive A"vanta#e$
!n advantage that a firm has over its competitors, allowing it to
generate greater sales or margins and#or retain more customers
than its competition. There can be many types of competitive
advantages including the firmCs cost structure, product offerings,
distribution network and customer support.
Investope"ia eplains $Competitive A"vanta#e$
8ompetitive advantages give a company an edge over its rivals
and an ability to generate greater value for the firm and its
shareholders. The more sustainable the competitive advantage,
the more difficult it is for competitors to neutralize the advantage.
There are two main types of competitive advantages=
comparative advantage and differential advantage. 8omparative
advantage, or cost advantage, is a firmCs ability to produce a
good or service at a lower cost than its competitors, which gives
the firm the ability sell its goods or services at a lower price than
its competition or to generate a larger margin on sales. !
differential advantage is created when a firmCs products or
services differ from its competitors and are seen as better than a
competitorCs products by customers.
Competitive a"vanta#e occurs when an organization acquires or
develops an attribute or combination of attributes that allows it to
outperform its competitors. These attributes can include access to natural
resources, such as high grade ores or ine+pensive power, or access to
highly trained and skilled personnel human resources. Dew technologies
such as robotics and information technology can provide competitive
advantage, whether as a part of the product itself, as an advantage to the
making of the product, or as a competitive aid in the business process 1for
e+ample, better identification and understanding of customers4.
Contents
" 3verview
$ 8ompetitive 7trategies#advantages
o $." 8ost ?eadership 7trategy
o $.$ Aifferentiation 7trategy
o $.& Innovation 7trategy
o $.' 3perational 9ffectiveness 7trategy
& 7ee also
' ;eferences
( 0urther reading
) 9+ternal links
(vervie!
Bichael Porter defined the two types of competitive advantage an
organization can achieve relative to its rivals= lower cost or differentiation.
This advantage derives from attribute1s4 that allow an organization to
outperform its competition, such as superior market position, skills, or
resources. In PorterCs view, strategic management should be concerned
with building and sustaining competitive advantage.
5"6
8ompetitive advantage seeks to address some of the criticisms of
comparative advantage. Porter proposed the theory in "E,(. Porter
emphasizes productivity growth as the focus of national strategies.
8ompetitive advantage rests on the notion that cheap labor is ubiquitous
and natural resources are not necessary for a good economy. The other
theory, comparative advantage, can lead countries to specialize in
e+porting primary goods and raw materials that trap countries in lowwage
economies due to terms of trade. 8ompetitive advantage attempts to
correct for this issue by stressing ma+imizing scale economies in goods
and services that garner premium prices 17tutz and /arf $>>E4.
5$6
The term competitive advantage is the ability gained through attributes and
resources to perform at a higher level than others in the same industry or
market 18hristensen and 0ahey "E,', Fay "EE', Porter "E,> cited by
8hacarbaghi and ?ynch "EEE, p. '(4.
5&6
The study of such advantage has
attracted profound research interest due to contemporary issues regarding
superior performance levels of firms in the present competitive market
conditions. G! firm is said to have a competitive advantage when it is
implementing a value creating strategy not simultaneously being
implemented by any current or potential playerG 1Barney "EE" cited by
8lulow et al.$>>&, p. $$"4.
5'6
7uccessfully implemented strategies will lift a
firm to superior performance by facilitating the firm with competitive
advantage to outperform current or potential players 1Passemard and
8alantone $>>>, p. ",4.
5(6
To gain competitive advantage a business
strategy of a firm manipulates the various resources over which it has direct
control and these resources have the ability to generate competitive
advantage 1;eed and 0illippi "EE> cited by ;i%amampianina $>>&, p. &)$4.
5)6
7uperior performance outcomes and superiority in production resources
reflects competitive advantage 1Aay and /esley "E,, cited by ?au $>>$,
p. "$(4.
5*6
!bove writings signify competitive advantage as the ability to stay ahead of
present or potential competition, thus superior performance reached
through competitive advantage will ensure market leadership. !lso it
provides the understanding that resources held by a firm and the business
strategy will have a profound impact on generating competitive advantage.
Powell 1$>>", p. "&$4
5,6
views business strategy as the tool that
manipulates the resources and create competitive advantage, hence,
viable business strategy may not be adequate unless it possess control
over unique resources that has the ability to create such a unique
advantage. 7ummarizing the view points, competitive advantage is a key
determinant of superior performance and it will ensure survival and
prominent placing in the market. 7uperior performance being the ultimate
desired goal of a firm, competitive advantage becomes the foundation
highlighting the significant importance to develop same.
Competitive Strate#ies/a"vanta#es
Cost )ea"ership Strate#y
The goal of 8ost ?eadership 7trategy is to offer products or services at the
lowest cost in the industry. The challenge of this strategy is to earn a
suitable profit for the company, rather than operating at a loss and draining
profitability from all market players. 8ompanies such as /almart succeed
with this strategy by featuring low prices on key items on which customers
are priceaware, while selling other merchandise at less aggressive
discounts. Products are to be created at the lowest cost in the industry. !n
e+ample is to use space in stores for sales and not for storing e+cess
product.
Differentiation Strate#y
The goal of Aifferentiation 7trategy is to provide a variety of products,
services, or features to consumers that competitors are not yet offering or
are unable to offer. This gives a direct advantage to the company which is
able to provide a unique product or service that none of its competitors is
able to offer. !n e+ample is Aell which launched masscustomizations on
computers to fit consumersC needs. This allows the company to make its
first product to be the star of its sales.
Innovation Strate#y
The goal of Innovation 7trategy is to leapfrog other market players by the
introduction of completely new or notably better products or services. This
strategy is typical of technology startup companies which often intend to
GdisruptG the e+isting marketplace, obsoleting the current market entries
with a breakthrough product offering. It is harder for more established
companies to pursue this strategy because their product offering has
achieved market acceptance. !pple has been a notable e+ample of using
this strategy with its introduction of iPod personal music players, and iPad
tablets. Bany companies invest heavily in their research and development
department to achieve such statuses with their innovations.
(perational &ffectiveness Strate#y
The goal of 3perational 9ffectiveness as a strategy is to perform internal
business activities better than competitors, making the company easier or
more pleasurable to do business with than other market choices. It
improves the characteristics of the company while lowering the time it takes
to get the products on the market with a great start.
8ompetitive advantage is the favorable position an organization seeks in
order to be more profitable than its competitors.
8ompetitive advantage involves communicating a greater perceived value
to a target market than its competitors can provide. This can be achieved
through many avenues including offering a betterquality product or service,
lowering prices and increasing marketing efforts. 7ustainable competitive
advantage refers to maintaining a favorable position over the long term,
which can help boost a companyCs image in the marketplace, its valuation
and its future earning potential.
Relate" #lossary terms* business integration, hackathon, IT
management, 7;I International 17;I4, cutting edge, HI 1user e+perience4,
E)minute rule, 7ilicon Jalley, IT strategy 1information technology strategy4,
servant leadership
Strate#ic +ana#ement for Competitive A"vanta#e
by 0rederick /. Kluck, 7tephen P. Faufman, and !. 7teven /alleck
8omments 1>4

Relate"
Also Available
Buy PA0
0or the better part of a decade, strategy has been a business buzzword.
Top e+ecutives ponder strategic ob%ectives and missions. Banagers down
the line rough out product#market strategies. 0unctional chiefs lay out
-strategies. for everything from ;:A to rawmaterials sourcing and
distributor relations. Bere planning has lost its glamor< the planners have
all turned into strategists.
!ll this may have blurred the concept of strategy, but it has also helped to
shift the attention of managers from the technicalities of the planning
process to substantive issues affecting the longterm wellbeing of their
enterprises. 7igns that a real change has been taking place in business2s
planning focus have been visible for some time in the performance of some
large, comple+ multinational corporationsLKeneral 9lectric, Dorthern
Telecom, Bitsubishi @eavy Industries, and 7iemens !.K., to name four.
Instead of behaving like large unwieldy bureaucracies, they have been
nimbly leapfrogging smaller competitors with technical or market
innovations, in true entrepreneurial style. They have been e+ecuting what
appear to be well thoughtout business strategies coherently, consistently,
and often with surprising speed. ;epeatedly, they have been winning
market shares away from more traditionally managed competitors.
/hat is the source of these giant companies2 remarkable entrepreneurial
vigorM Is it the result of their substantial investments in strategic planning,
which appear to have produced something like a quantum %ump in the
sophistication of their strategic planning processesM If so, what lessons can
be drawn from the steps they have taken and the e+perience they have
gainedM
To e+plore these questions, we embarked on a systematic e+amination of
the relation between formal planning and strategic performance across a
broad spectrum of companies 1see the sidebar4. /e looked for common
patterns in the development of planning systems over time. In particular,
we e+amined their evolution in those giant companies where formal
planning and strategic decision making appeared to be most closely and
effectively interwoven.
! Nuest for 8ommon Patterns
3ur findings indicate that formal strategic planning does indeed evolve
along similar lines in different companies, albeit at varying rates of
progress. This progression can be segmented into four sequential phases,
each marked by clear advances over its predecessor in terms of e+plicit
formulation of issues and alternatives, quality of preparatory staff work,
readiness of top management to participate in and guide the strategic
decision process, and effectiveness of implementation 1see the 9+hibit4.
The fourphase model evolution we shall be describing has already proved
useful in evaluating corporate planning systems and processes and for
indicating ways of improving their effectiveness.
In this article, we describe each of the four phases, with special emphasis
on Phase IJ, the stage we have chosen to call strategic management. In
order to highlight the differences between the four stages, each will be
sketched in somewhat bold strokes. 3bviously, not all the companies in our
sample fit the pattern precisely, but the generalizations are broadly
applicable to all.
,hat is competitive a"vanta#e-
There is no one answer about what is competitive advantage or one way to
measure it, and for the right reason. Dearly everything can be considered
as competitive edge, e.g. higher profit margin, greater return on assets,
valuable resource such as brand reputation or unique competence in
producing %et engines. 9very company must have at least one advantage to
successfully compete in the market. If a company can2t identify one or %ust
doesn2t possess it, competitors soon outperform it and force to leave the
market.
There are many ways to achieve the advantage but only two basic types of
it= cost or differentiation advantage. ! company that is able to achieve
superiority in cost or differentiation is able to offer consumers products at
lower costs or with higher degree of differentiation and most importantly, is
able to compete with its rivals.
!n organization that is capable of outperforming its competitors over a long
period has sustainable competitive a"vanta#e.
The following diagram illustrates the basic competitive advantage model,
which is e+plained below in the article=
/o! a company can achieve it-
!n organization can achieve an edge over its competitors in the following
two ways=
0hrou#h eternal chan#es. /hen P97T factors change, many
opportunities can appear that, if seized upon, could provide many
benefits for an organization. ! company can also gain an upper hand
over its competitors when its capable to respond to e+ternal changes
faster than other organizations.
By "evelopin# them insi"e the company. ! firm can achieve cost
or differentiation advantage when it develops J;I3 resources, unique
competences or through innovative processes and products.
&ternal Chan#es
Chan#es in P&S0 factors. P97T stands for political, economic, socio
cultural and technological factors that affect firm2s e+ternal environment.
/hen these factors change many opportunities arise that can be e+ploited
by an organization to achieve superiority over its rivals. For example, new
superior machinery, which is manufactured and sold only in 7outh Forea,
would result in lower production costs for Forean companies and they
would gain cost advantage against competitors in a global environment.
8hanges in consumer demand, such as trend for eating more healthy food,
can be used to gain at least temporary differentiation advantage if a
company would opt to sell mainly healthy food products while competitors
wouldn2t. For example, 7ubway and F08.
If opportunities appear due to changes in e+ternal environment why not all
companies are able to profit from thatM It2s simple, companies have
different resources, competences and capabilities and are differently
affected by industry or macro environment changes.
Company%s ability to respon" fast to chan#es. The advantage can also
be gained when a company is the first one to e+ploit the e+ternal change.
3therwise, if a company is slow to respond to changes it may never benefit
from the arising opportunities.
Internal &nvironment
1RI( resources. ! company that possesses J;I3 1valuable, rare, hard to
imitate and organized4 resources has an edge over its competitors due to
superiority of such resources. If one company has gained J;I3 resource,
no other company can acquire it 1at least temporarily4. The following
resources have J;I3 attributes=
Intellectual property 1patents, copyrights, trademarks4
Brand equity
8ulture
Fnowhow
;eputation
Uni2ue competences. 8ompetence is an ability to perform tasks
successfully and is a cluster of related skills, knowledge, capabilities and
processes. ! company that has developed a competence in producing
miniaturized electronics would get at least temporary advantage as other
companies would find it very hard to replicate the processes, skills,
knowledge and capabilities needed for that competence.
Innovative capabilities. Bost often, a company gains superiority through
innovation. Innovative products, processes or new business models
provide strong competitive edge due to the first mover advantage. For
example, !pple2s introduction of tablets or its business model combining
mp& device and iTunes online music store.
0!o basic types
B. Porter has identified $ basic types of competitive advantage= cost and
differentiation advantage.
Cost a"vanta#e. Porter argued that a company could achieve superior
performance by producing similar quality products or services but at lower
costs. In this case, company sells products at the same price as
competitors but reaps higher profit margins because of lower production
costs. The company that tries to achieve cost advantage is pursuing cost
leadership strategy. @igher profit margins lead to further price reductions,
more investments in process innovation and ultimately greater value for
customers.
Differentiation a"vanta#e. Aifferentiation advantage is achieved by
offering unique products and services and charging premium price for that.
Aifferentiation strategy is used in this situation and company positions itself
more on branding, advertising, design, quality and new product
development rather than efficiency, outsourcing or process innovation.
8ustomers are willing to pay higher price only for unique features and the
best quality.
The cost leadership and differentiation strategies are not the only strategies
used to gain competitive advantage. Innovation strategy is used to develop
new or better products, processes or business models that grant
competitive edge over competitors.
References
". Porter, Bichael 9. 1"E,(4. Competitive Advantage. 0ree Press.
I7BD >),','"')>.
$. /arf, 0rederick P. 7tutz, Barney 1$>>*4. The world economy :
resources, location, trade and development 1(th ed. ed.4. Hpper
7addle ;iver= Pearson. I7BD >"&$'&),E$.
&. 8hacarbaghi< ?ynch 1"EEE4, Competitive Advantage: Creating
and Sustaining Superior Performance by ichael !" Porter #$%&,
p. '(
'. 8lulow, Jal< Kerstman, Oulie< Barry, 8arol 1" Oanuary $>>&4.
GThe resourcebased view and sustainable competitive advantage=
the case of a financial services firmG. 'ournal of !uropean (ndustrial
Training 34 1(4= $$>P$&$. doi=">."">,#>&>E>(E>&">')E)>(.
(. Passemard< 8alantone 1$>>>4, Competitive Advantage:
Creating and Sustaining Superior Performance by ichael !" Porter
#$%&, p. ",
). ;i%amampianina< ;asoava, !bratt, ;ussell, 0ebruary, Qumiko
1$>>&4. G! framework for concentric diversification through
sustainable competitive advantageG. anagement )ecision 56 1'4=
&)$.
*. ?au, ;onald 7 1" Oanuary $>>$4. G8ompetitive factors and their
relative importance in the H7 electronics and computer industriesG.
(nternational 'ournal of *perations + Production anagement 33 1"4=
"$(P"&(. doi=">."">,#>"''&(*>$">'"$">(.
,. Powell, Thomas 8. 1" 7eptember $>>"4. G8ompetitive
advantage= logical and philosophical considerationsG. Strategic
anagement 'ournal 33 1E4= ,*(P,,,. doi=">.">>$#sm%."*&.