Business Policy & Strategic Management Notes PDF

SUPPLEMENTARY NOTES 1 IS-BP 213 – BUSINESS POLICY AND STRATEGIC MANAGEMENT BUSINESS POLICY – DEFINITION AND DISCUSSION OF CONCEPTS BUSINESS POLICY – DEFINITION AND SCOPE Policy set of principles on which the purpose of an...

SUPPLEMENTARY NOTES 1 IS-BP 213 – BUSINESS POLICY AND STRATEGIC MANAGEMENT BUSINESS POLICY – DEFINITION AND DISCUSSION OF CONCEPTS BUSINESS POLICY – DEFINITION AND SCOPE Policy set of principles on which the purpose of an organization is anchored denotes future course of action of intent towards the activities of an organization (expression of beliefs of an organization) a decision rule and not a decision (general guideline for decision making) set of objectives, the mode of thought, and the body of principle underlying the activities of an organization what an organization or a person intends to do Business also known as enterprise or firm an organization engaged in the trade of goods, services, or both to consumers encompasses all the activities of the market sector has four major forms according to ownership sole proprietorship – business owned by one person for profit; owner may operate the business alone or may employ others; owner has unlimited liability for the debts incurred by the business partnership – business owned by two or more people (in most forms, each partner has unlimited liability for debts incurred by the business) corporation – a limited liability business that has a separate legal personality from its members; owned by shareholders who elect the board of directors cooperative – a limited liability business that can organize for profit or not for profit; members share decision-making authority Business Policy what business organization intends to do aims at assisting the organization to deliver services to meet the needs and expectations of the goals of the organization guide and roadmap to create awareness and direction to the management of any organization provides bedrock of the mission and vision statements of the business organization along the corporate objectives and goals scope within which decisions can be taken by the subordinates in an organization permits the lower management to deal with the problems and issues without consulting top level management for every decision set of guidelines developed by an organization to govern its actions (define the limits within which decisions must be made) The following are characteristics of business policies. 1. Specific. Policy should be specific/definite. If it is uncertain, then the implementation will be difficult. 1  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. The following are features of business policy. 1. Generalized statements – Policies are guiding principles which incorporate management thinking and organizational objectives. Thus, they contain generalized qualitative statements of intent and action. This ensures a wide scope of applicability and flexibility for adapting to multiple scenarios. 2. Long-term outlook – Policies unlike strategies don’t have timelines or time limits of validity. They are ongoing documents which stay relevant unless modified. This is important in providing stability to business. 3. Aligned to goals and objectives – Business policies originate at the strategic level as a means to fulfil organizational goals and objectives. They need to flow in that top-down manner through the organization. 4. Multi-level existence – Evident from the above, policies flow and exist across multiple levels in the organization. Each policy is typically tagged to its parent policy to ensure traceability and alignment across top management, middle management and lower management levels. 5. Decision making for routine and repetitive functions – Unlike strategy which handles new unanswered challenges for the organization, the underlying purpose of a policy is delegating decision making and smooth functioning of the routine operations of the organization. 6. Positive orientation – Business policy is a guide for managerial action. It thus has a positive orientation of what needs to be done. In most cases it sets an affirmative tone with the employees and other users. In some sense the policy wording echoes the corporate culture and values which are meant to inspire managers. 7. Non-repeatability - Policies due to the fact that they exist at multiple levels of the business are meant to delegate power and authority. Thus, they need to avoid repeated handling of scenarios and prescribed action. This only creates confusion among the employees. DIFFERENCES 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: A policy is a blueprint of the organizational activities which are repetitive/routine in nature while a strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. A policy formulation is responsibility of top-level management while a strategy formulation is basically done by middle-level management. 2  A policy deals with routine/daily activities essential for effective and efficient running of an organization while a strategy deals with strategic decisions. A policy is concerned with both thought and actions while a 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. Basis of Strategy Policy Comparison Meaning Strategy is a comprehensive plan made to Policy is the guiding principle that helps the accomplish the organizational goals. organization to take logical decisions. Basis action plan action principle Nature flexible fixed, but they allow exceptional situations Relation organizational moves and decisions for the organizational rules for the activities which situations which have not been encountered are repetitive in nature previously Orientation action thought and decision Formulation top level management and middle level top level management management Approach extroverted introverted Purpose methodology used to achieve the target what should be done and what should not be done Business policy and strategy are different from each other but the close interrelation is shown by the following diagram. Business policy imbibes elements of strategy and is an important tool in operationalizing strategy. Strategy provides the following inputs to business policy: a framework for operational planning a direction and prioritization to organization’s activities authority and accountability of achieving objectives in the set timelines ensures optimal deployment and utilization of organization’s resources alignment of people, processes, and practices to overall strategic direction thus increasing organization effectiveness guiding reference point to ongoing decision making OBJECTIVES OF BUSINESS POLICY The main objective of business policy is performance driven which ensures delivery of service or goods depending on purpose of which the business was set-up (service or goods) 3 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 of mission statement the establishment of the vision of the organization 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. TYPES OF BUSINESS POLICIES Policies can be termed as operations manuals, handbooks, standard operating procedures, guidelines etc. The following are types of business policies. Regulatory – These policies ensure that organization functioning is in accordance with the regulatory requirements and local laws. Some organizations go beyond the basic legal requirements in framing their policies. For example, Policy for Prevention of Sexual Harassment Advisory – These are policies which prescribe certain way of functioning or certain behavior from employees. These policies advise acceptable standards and also advise consequences thereof. For example, social media policy · Informative – These are designed primarily for information dissemination. These policies typically cover processes such as customer complaints redressal policy etc. Other policies are classified as follow: Major policies are those policies which are formulated by the top management to cover overall corporate objectives, structure, resourcing and other strategic areas. Senior management operations and procedures are also covered in major policies. Minor policies as the name suggests are at a lower operational level. Often, they are formulated at the department or unit level and are normally part of some major policy. Parent policies are policies formulated in the top management levels. Child policies refer to the parent policy in intent and guidance but operate at a lower level of hierarchy (top-down approach) WHY CREATE BUSINESS POLICIES? The following are reasons why business policies are created: drive strategic planning and help set expectations and performance objectives lead to more efficient internal operations engage and align 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 4  result in time savings meet legal requirements FORMULATING BUSINESS POLICIES Business policies are an integration of knowledge in management areas with a complex overlay of inter-linkages within the organization to provide a generalized approach to decision-making and problem solving. Policy formulation is a democratic exercise which incorporates the views and opinions of people with the knowledge and experience of the organization. The following are basic concepts by which business policies should cover: 1. It should incorporate a future approach which the organization should adopt towards realizing its goals and objectives. 2. The policy should be able to mold the character and identity of the organization via its content. 3. It should be able to comprehensively address the roles and responsibilities of the top management both for current and future challenges which the organization may face. 4. Policies should also incorporate the element of resource mobilization towards achievement of organizational goals. The following are the steps in formulating business policies: COMPONENTS OF A BUSINESS POLICY DOCUMENT The following are the components of a business policy document. 1. Title – The title of the policy is a meaningful phrase which will clearly indicate what the policy is about. 2. Policy – This contains the actual text of the policy. 3. Purpose – Purpose of the policy lays out the need for the policy. 4. Scope – Applicability of the policy defines its scope. 5. Responsibilities – Who does what in the different scenarios is covered under the responsibilities section. 6. Definitions – Some terms of the policy may need to be defined in unambiguous terms so that everyone has the same understanding of them. 5  7. Special cases/deviations – Any exception or special cases which can be anticipated or may not be anticipated get handled in this section. 8. References – Is this policy linked to any other policy or refers other organizational documents. 9. Owner of the policy – Who is the functional owner of the policy document? POLICY EVALUATION AND CONTROL Policies don’t come with an expiry date or a timeline. Theoretically they exist in perpetuity unless amended or revoked. Strategic management process calls for a periodic evaluation of the strategic plan, monitoring of its performance and course corrections wherever required. Similarly, policies review, monitoring and control needs to be a planned activity done at periodic intervals. Policy evaluation can be defined as the measurement, testing and review of the effective implementation of a business policy to achieve the target objectives. Evaluation process consists of the following aspects: 1. Appropriateness – Relevance of the policy to the changing organization or to different external factors needs to be evaluated. It’s alignment to the overall strategic plan needs to be ensured at all times. 2. Consistency – Policy should show consistency in achieving the desired objectives. 3. Feasibility – This refers to the ease and effectiveness of implementation of the policy. Feedback loops from users of the policy are an important tool in evaluating the feasibility of the policy. Policy evaluation is followed by the control process which essentially triggers corrective action in the key change areas identified in the evaluation process. Control measure could be either to modify the policy or to demise the current policy or to create a new policy. 6