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Business Policy

Nishant Gaur
Asst. Professor

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 long-run.

Features of Business Policy

An effective business policy must have following features-


Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.


Policy must be unambiguous. There should be no misunderstandings

in following the policy.


Policy must be uniform enough so that it can be

efficiently followed by the subordinates.


Policy should be appropriate to the present organizational


A policy should be simple and easily understood by all in the


Inclusive/Comprehensive- In order to have a wide scope, a policy

must be comprehensive.

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.

Stable- Policy should be stable else it will lead to indecisiveness

and uncertainty in minds of those who look into it for guidance.

Difference between Policy and Strategy

The term policy should not be considered as synonymous to the term strategy. The difference
between policy and strategy can be summarized as followsPolicy

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.


formulation is responsibility of top level management. While strategy formulation is

basically done by middle level management.


deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.


is concerned with both thought and actions. While strategy is concerned mostly with action.

A policy

is what is, or what is not done. While a strategy is the methodology used to achieve a
target as prescribed by a policy.

Nature of Business Policy

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 towards 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.

Nature of Business Policy

To study the role and responsibility of top management which can convert
an organization into success.
It aims for the successful future of an organization
It is responsible for building future course of action and give a sense of
Business policy lays down a long term plan, to be followed by the
While determining the future course of action , the senior management has
a paradigm or scheme of the type of organization they want their company
to become.

Some useful definitions of Business Policy

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.

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.


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.


The purpose of a business policy is to enable the management to relate

properly the organizations work to its environment. Business policies are
guides to action or channels to thinking.

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 firms
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.
Types of policies

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

Types of policies

Policies are broad statements, adopted by a business, that set out what the business
stands for and what its goals are. Procedures are usually implemented to support
each policy explaining how to apply the policy to the business's customers,
employees and products, and the instructions necessary to follow the policy.
Examples of areas where businesses typically institute policies are ethics, human
resources, accounting and customer service.
Ethics policies address issues such as honesty, fairness, integrity and respect. For
example, the long-standing ethics policy regarding honesty instituted at Levi
Strauss and Co. as quoted by reads: Honesty: We will not say things that
are false. We will never deliberately mislead. We will be as candid as possible,
openly and freely sharing information, as appropriate to the relationship.
Human Resources
Policies imposed in the area of human resources address issues such as hiring and
termination, benefits, promotion and salary increase and discipline. For example, a
typical human resources policy addressing hiring might read: New hires shall be
subject to a three month probationary period during which employment is 'at-will.'


Customer service policies address issues such as employee attitude toward
customers. A sample policy dealing with customer relations as reported by
reads: All employees deal with our customers! No matter what your position, every
employee impacts the customer in some way. Employees are reminded to promote the
company just as they would represent their families. This means being friendly and
courteous on the business property, while visiting our stores, driving our vehicles on
roads and highways and in daily interactions. After all, you never know who knows
the person you are talking to... Other ways employees can enhance customer
relationships are to answer phones before three rings, transfer office calls correctly,
follow through on promises, give updates if necessary, greet walk-in customers or just
smile and say hello. Treating other as you expect to be treated goes a long way in
customer service relationships.
Accounting policies deal with how money is handled in the company, both the
spending and the documenting of inflow and out-flow. An example of a typical
accounting policy regarding receipt of gifts to an organization might read: Gifts of
stock, bonds, manuscripts, art and antiques are recorded and such information is
openly available to officers, stock holders and employees as with any other corporate

Examples of Business Policies

Absenteeism Policy

A policy that provides guidance within an organization about how to

manage the state of chronic absence from work. Absenteeism is usually
addressed through progressively stricter disciplinary measures that can
result in the termination of the individual's employment. This is generally
governed by the organizations attendance policy attendance policy .
Dress Code policy
Company's objective in establishing a casual dress code is to allow our
employees to work comfortably. Yet, we still need our employees to
project a professional image for our customers and clients who visit.
Because all casual clothing is not suitable for the workplace, these
guidelines will help you determine what is appropriate. Learn more about
casual dress in this dress code that differentiates between clothing for
industry and manufacturing and clothing for the office.

Company Based Examples

Business Ethics: Sample Policies
Levi Strauss & Co: Ethical Principles
"Our ethical principles are the values that set the ground rules for all that we
do as employees of Levi Strauss & Co. As we seek to achieve responsible
commercial success, we will be challenged to balance these principles
against each other, always mindful of our promise to shareholders that we
will achieve responsible commercial success.
The Ethical Principles Are:
HONESTY: We will not say things that are false. We will never deliberately
mislead. We will be as candid as possible, openly and freely sharing
information, as appropriate to the relationship.
PROMISE-KEEPING: We will go to great lengths to keep our
commitments. We will not make promises that can't be kept and we will
not make promises on behalf of the Company unless we have the
authority to do so.

FAIRNESS: We will create and follow a process and achieve

outcomes that a reasonable person would call just, evenhanded
and non arbitrary.
RESPECT FOR OTHERS: We will be open and direct in our
communication, and receptive to influence. We will honor and
value the abilities and contributions of others, embracing the
responsibility and accountability for our actions in this regard.
COMPASSION: We will maintain an awareness of the needs of
others and act to meet those needs whenever possible. We will
also minimize harm whenever possible. We will act in ways that
are consistent with our commitment to social responsibility.
INTEGRITY: We will live up to LS & CO's ethical principles,
even when confronted by personal, professional and social risks,
as well as economic pressures."

NORTEL: Core Values

"At Northern Telecom (Nortel), we recognize the importance of credibility,
integrity and trustworthiness to our success as a business. We are
committed to upholding high ethical standards in all our operations,
everywhere in the world. We believe in the principles of honesty,
fairness, and respect for individual and community freedoms.
Living up to both the letter and the spirit of this commitment is not always
an easy task. As a large and diverse corporation working globally, we
recognize that while there is some level of agreement the world over on
what constitutes honest and ethical business practice, there can also be
valid differences of opinion.
In our working lives, we often experience situations where the 'right thing
to do' is not immediately apparent. Loyalties -- to our fellow employees,
to managers, customers and suppliers, to our families, our communities,
the environment, the corporation as a whole, and to ourselves -- may
seem to conflict. When we're faced with a complicated situation, it can be
difficult to decide where the ethical path lies.

Characteristic Features of Business Policy


Policy is a Statement, verbal, written or Implied, of those principles

and rules that are set by Managerial Leadership as guidelines &
constraints for the organizations Thoughts and actions
The purpose of the policy is to enable the management to relate
properly the organizations work to its objectives
The existence of practical and comprehensive policies tends to increase
Decisions made within a policy framework have a higher probability of
being synchronized with other decisions within the company
Refers to decisions about future of an enterprise
Guiding Framework for repetitive decisions
Top Management to Lower Management Involvement
Setting Long-Term objectives of an enterprise
Study of functions & responsibilities of senior management
concerning crucial problems

It Provides direction to the organization and shape of future

Policy refers to total enterprise or a large segment of it I.e
change in organizational goals
Long Term perspective & commitment
Usage of critical resources vis--vis environment
Continuous process in nature
Identification of opportunities & choosing the right strategy
Adaptation to the Changing Environment

Business Policy Formulation at

Different Levels of Management

Policies are set at different levels of Management concerning

different responsibilities:
Dividend Policy: Board of Directors
Capital Allocation for Expansion: Top Management
Revenue Matters/ Sales Administration Middle Management
Routine Actions: Lower Management

Business Policy as a Field of Study

It gives an Integrated view of management based knowledge

& experience
Complexities of business & its constraints wrt environment
Broader perspective of Management Learning
Study of Top Mgmt. & Responsibilities & decision making
Conceptualization of Key Business processes
A preparation for performance as a General manager and
broadening of perspective of specialist
Understanding & Implementation of SM Process

Objectives in Attitudes:
Generalist rather Specialist
View of Practitioner
Orientation of Professional Businessman
More Value to Creativity & Innovation than to maintenance of
Status quo
Objectives in Knowledge:
Knowledge of concepts
Knowledge of situations
Objectives in Skills:
Analytical Ability
Strategic Analysis Ability


Strategy is defining & achieving an organization's objectives

& implementing its missions
Large scale, future oriented plans for interacting with
competitive environment to optimize achievement of an
organizations objectives
Pattern of an organization's responses to its environment over
Long Term objectives or Purposes of an organization
Different from Operating decisions i.e day to day related

Strategic Management
Set of decisions & actions resulting in formulation &
implementation of strategies designed to achieve the objectives
Requirement due to complexity & sophistication of Business
decision Making process
Effective dealing with environmental challenges with given orgn.
Dimensions of Strategic Management
Top Management Decisions
Allocation of Large Amount of Companys resources
Significant Impact on the Long Term Prosperity of the Firm
Future Oriented
Major Multifunctional or Multi business consequences
Consideration of factors corresponding to Firms external

Scope of Business Policy

Corporate Objectives
Functional Objectives
General Organizational Objectives
High Level Long term Objectives
Scanning Internal and External Environment
SWOT Analysis
Guiding and Directing Organization

Business Policy has a wide scope starting


Setting the corporate objectives

Provides guidelines to set functional objectives
Provides guidelines to all activities in the organization
Policy helps an organization in framing high level long term corporate
objectives and strategies which are consistent with company's capabilities
and external realities
It enables top management to visualize and evaluate the environment both
internal as well as external environment and then to identify SWOT Posing
the company.
By this type of analysis it helps the management to scan the environment
so that realities that exist in the global market on account of economical,
technological, social and political changes can be traced.
Studying business policy helps the top management to develop guiding
principles for its activities

Managerial Skills required for Business Policy

The manager require different skills for varied situation
1. Technical Skills:

Specific tools and techniques , their appropriate knowledge and their

working process all this is core of technical skill.

That is practical Knowledge of the theoretical concept

Such skills can be developed by doing practices

2. Human Skills :

How to work with people effectively

Co-ordination and co-operation are major tools to enhance the skill

3. Conceptual Skills :

Why, What is the purpose of doing ?

These skills are the basics for clarity about the varied concepts and their
significant impact on overall performance of the organization


Financial Benefits
Enhanced capability of problem preventions:
Improved quality of strategic decisions through group
Greater Employee Motivation:
Reduction of Gaps and overlaps in activities:
Minimum resistance to change:

Evolution of Strategic
Strategic management has evolved through four phases:

Forecasting (Basic Financial Planning)

Long Range Planning (Forecast based planning)

Strategic Planning (Externally Oriented Planning)

Strategic Management

The strategic management has evolved through four phases of strategic


Forecasting (Basic Financial Planning):

Managers initiate serious planning when they are requested to propose the
following years budget. Projects are proposed on the basis of very little
analysis, with most information coming from within the firm. The sales force
usually provides the small amount of environmental information and for that
company activities are often suspended for weeks while managers try to cram
ideas into the proposed budget. The time horizon is usually one year.

Long Range Planning (Forecast based planning)

An annual budget becomes less useful at stimulating long-term planning.
Therefore, managers propose to attempt to propose five year plans. At this
point they consider projects that may take more than one year. In addition to
internal information. Managers gather any available environmental data and
extrapolate current trends five years into the future. This phase is also time

Strategic Planning (Externally Oriented Planning)

Here, the top management takes control of the planning process
by initiating strategic planning. The company seeks to increase
its responsiveness to changing markets and competition by
thinking strategically. Planning is taken out of the hands of the
lower level managers and concentrated in a planning staff whose
task is to develop strategic plans for the corporation.
Strategic Management
Realizing that even the best strategic plans are worthless
without the input and commitment of lower level managers, top
management forms planning groups of managers and key
employees at many levels, from various departments and