Strategic Management(i): Business Policy

Preface: This is my study clip notes from reading Strategic Management by P. Subba Rao. 

Policy-making is one of the most important components of business planning. Policies may be defined as “the mode of thought and the principles underlying the activities of an organization or an institution”. They guide the management in the conduct of business/enterprise operations, and offer a ready-made or standing answer to a recurring question. They are, therefore, sometimes considered as a substitute for common sense. 

For policies to be effective, they should be sound. One expert lays down certain criteria for judging whether a business policy is sound or otherwise. He maintains that for policies to be effective, they should be: 

1. Based on organization objectives;

2. Capable of relating objectives to functions, physical factors, and company personnel; 

3. In conformity with the accepted ethical standards of business; 

4. Stated in definite, understandable terms, preferably in writing; 

5. Stable and flexible; 

6. Sufficiently comprehensive in scope; 

7. Complementary to co-ordinate policies; 

8. Supplementary to superior policies. 

The making of policies usually goes through the following steps: 

1. Identification of the situation 

2. Development of policy 

3. Dissemination of the policy 

4. Explanation of the policy 

5. Acceptance of the policy 

6. Feedback 

Though formulation of policies is important for business and management, they may have certain limitations: 

1. They are formulated by the top management to relieve subordinates of the necessity of rethinking about the factors upon which the policy is based. In short, a policy eliminates thinking about repetitive matters. If subordinates develop the habit of referring to company policy as the only reason for their actions, they may use policies as crutches and defeat the intent of the policies themselves. 

2. Policies provide stability and direction to the action of the members of the firm; yet, if a policy remains in existence for long after conditions have changed, it can have the effect of retarding and hindering progress. 

3. If policies are not stated in broad and definite terms, they may tend to encourage a subordinate to avoid responsibility for making his own decisions. ☀️