Ms Diksha Singh

Assistant Professor
GDRCST, Bhilai

BBA 6th SEMESTER

BUSINESS POLICY & STRATEGY

UNIT-01

Meaning of Business Policy

The term "Business Policy" comprises of two words, Business and Policy. Business as we know
means exchange of goods and services for increasing utilities. Policy may be defined as "the
mode of thought and the principles underlying the activities of an organization or an institution."
Policies are general statements of principles which guide the thinking, decision making and
actions in an organization. Business policy is a set of principles and rules which directs the
decisions of the subordinates. Policies are framed by the top level management to serve as a road
map for operational decision making. It is helpful in stressing the rules, principles and values of
the organization. Policies are designed, by taking opinions and general views of a number of
people in the organization regarding any situation. They are made from the past experience and
basic understanding. In this way, the people who come under the range of such policies will
completely agree upon its implementation. Policies help the management of an organization to
determine what is to be done, in a particular situation. These have to be consistently applied over
a long period of time to avoid discrepancies and overlapping.

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 the long-run.

DEFINITIONS OF BUSINESS POLICY:-

[Link]: “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 relation to its environment”.
Henry Mintzberb: “Policy refers to Goal-directed decisions and actions in which capabilities
and resources are matched with the opportunities and threats in the environment.” “Policy and
Strategy are consistent stream of decisions and actions to deal with the environment.
Christensen, Steiner and others: “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 organisation and shape its future.
Features of Business Policy:
An effective business policy must have following features-

1. Specific & Definite:

Policy should be specific/definite. If it is uncertain, then the implementation will become
difficult.

2. Clear:
Policy must be unambiguous. It should avoid the use of jargon 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.

Scopes of Business Policy:

1. It should cover all the aspects of business.
2. It includes the functions and responsibility of senior employees.
3. Deal with determination of future course of action.
4. Involves a choice of purpose and defining the needs.
5. Include the resources by the help of which organization can achieve its goal.

Importance of a Business Policy:

Policies are the key for success of the business. Policies offer great advantages to the
management if they are stated with clarity. It raises the confidence of the line managers. They
make the decisions within a given boundary. The managers act without the need for consulting
the senior managers every time which minimizes the need for close supervision. It also builds the
confidence of the managers. The importance of business policies are discussed as follows:

1. Control:
Policy facilitates effective control on the working of the organization. It indirectly controls the
managers at different levels without directly interfering in their routine working.

2. Effective Communication:

Generally policies are written and well drafted statements. Hence there is not a remote chance of
confusion or miscommunication. By setting policies the management ensures that decisions
made will be consistent and in the best interest of the organization. Clearly laid down policies try
to eliminate personal hunch and biasness.

3. Clarity:
Policies clarify the viewpoint of the management for the purpose of running a particular activity /
activities.
 4. Motivation:
Policy enables the line managers to be self reliant. They take the decision on their own in the
confined border of the policy. This raises their confidence and motivates them. A well drafted
policy provides a pattern within which delegation of authority is possible.

5. Policy Review:
Regular review of policy is must to see to it that the existing policies are relevant in the given
situation. If required policy may be modified or altered depending on the business environment.
Review of policy at regular intervals provides a method of anticipating future conditions and
situations and helps to resolve how to deal with them.

6. Economical and Efficient:

Policy enables the management to carry out its operations effectively and efficiently. It enhances
the working of the organization.

7. Coordination of Efforts:
Policies ensure coordination of efforts and activities at different levels in the organization.
Activities and duties are assigned in such a way that all activities in the organization are
integrated effectively. Policy coordinates with individual efforts.

8. High Morale:
A well crafted policy can raise the overall morale of an enterprise. Policy enables the managers
to understand the intention of the management.

Purpose of Business policy:

 To integrate the knowledge gained in various functional areas of management
 To adopt a generalist approach to problem-solving.
 To understand the complex inter-linkages operating within an organization through the use of
systems approach to decision making and relating them to changes taking place in the external
environment.

Business Policy Process:-

1. Environmental Scanning
2. Policy Formulation
3. Policy Implementation
4. Evaluation and Control.

1. Environmental Scanning: Environmental scanning is the monitoring, evaluating and

disseminating of information from the external and internal environments to key people within
the corporation. Its purpose is to identify strategic factors those external and internal elements
that will determine the future of the corporation. The simplest way to conduct environmental
scanning is through SWOT analysis. SWOT is an acronym used to describe those particular
Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific
company. The external environment consists of variables (Opportunities and Threats) that are
outside the organization and not typically within the short-run control of top management. These
variables form the context with which the corporation exists. The internal environment of a
corporation consists of variables (Strengths and Weaknesses) that are with the organization itself
and are not usually within the short-run. Control of top management. These variables form the
context in which work is done. They include the corporation’s structure, culture, and resources.
Key strengths form a set of core competencies that the corporation can use to gain competitive
advantages.

2. Policy Formulation: Policy formulation is the development of long-range plans for the
effective management of environmental opportunities and threats, in light of corporate strengths
and weaknesses. It includes defining the corporate mission, specifying achievable objectives,
developing strategies, and setting policy guidelines.
a. Mission: An organization’s mission is the purpose or reason for the organization’s existence.
It tells what the company is providing to society, either a service like house cleaning or a product
like automobiles. A well-conceived mission statement defines the fundamental, unique purpose
that sets a company apart from the other firms of its type and identifies the scope of the
company’s operations in terms of products (including services) offered and markets served. It
may also include the firm’s philosophy about how it does business and treats its employees. It
puts into words not only what the company is now, but also what it wants to become
management’s strategic vision of the firm’s future. (Some people like to consider vision and
mission as two different concepts.
A mission statement describes what the organization is now; a vision statement describes what
the organizations would like to become. We prefer to combine these ideas into a single mission
statement). The mission statement promotes a sense of shared expectations in employees and
communicates a public image to important stakeholder groups in the company’s task
environment. It tells who we are and what we do as well as what we’d like to become.

b. Objectives: Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantified if possible. The achievement of corporate
objectives should result in the fulfilment of a corporation’s mission. In effect, this is what society
gives back to the corporation when the corporation does a good job of fulfilling its mission.
Some of the areas in which a corporation might establish its goals and objectives are:
1. Profitability (net profits)
2. Efficiency (low costs, etc.)
3. Growth (increase in total assets, sales, etc.)
4. Shareholder wealth (dividends plus stock price appreciation)
5. Utilization of resources (return on investment or equity)
6. Reputation (being considered a ‘top’ firm)
7. Contributions to employees (employment security, wages, diversity)
8. Contributions to society (taxes paid, participation in charities, providing a needed product or
service) 9. Market leadership (market share)
c. Strategies: A strategy of a corporation forms a comprehensive master plan stating how the
corporation will achieve its mission and objectives. It maximizes competitive advantage and
minimizes competitive disadvantage. For example, after Rockwell International Corporation
realized that it could no longer achieve its objectives by continuing with its strategy of
diversification into multiple lines of businesses, it sold its aerospace and defence units to Boeing.
Rockwell instead chose to concentrate о commercial electronics; an area that management felt
had greater opportunities for growth.
The typical business firm usually considers 3 types of strategy: Corporate, Business and
Functional.
1. Corporate Strategy describes a company’s overall direction in terms of its general attitude
towards growth and the management of its various businesses and product lines. Corporate
strategies typically fit within the 3 main categories of stability, growth strategy by acquiring
other appliance companies in order to have a full line of major home appliances.
2. Business Strategy usually occurs at the business unit or product level, and it emphasizes
improvement of the competitive position of a corporation’s products or services in the specific
industry or market segment served by that business units. Business strategies may fit within the
two overall categories of competitive or cooperative strategies. For example, Apple Computer
uses a differentiation competitive strategy that emphasizes innovative products with creative
design. The distinctive design and colours of its iMac line of personal computers (when
contrasted with the usual beige of the competitor’s products) has successfully boosted the
company’s market share and profits. In contrast British Airways followed a cooperative strategy
by forming an alliance with American Airlines in order to provide global service.
3. Functional Strategy is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned with
developing and nurturing a distinctive competence to provide a company or business unit with a
competitive advantage. Examples of R&D functional strategies are technological follower ship
(imitate the products of other companies) and technological leadership (pioneer an innovation).
For years, Magic Chef had been a successful appliance maker by spending little on R&D but by
quickly imitating the innovations of other competitors.
d. Policies: A policy is a broad guideline for decision-making that links the formulation of
strategy with its implementation. Companies use policies to make sure that employees
throughout the firm make decisions and take actions that support the corporation’s mission,
objectives and strategies.

3. Policy Implementation: Policy implementation is the process by which strategies and

policies are put into action through the development of programs, budgets, and procedures. This
process might involve changes within the overall culture, structure, and /or management system
of the entire organization. Except when such drastic corporate-wide changes are needed,
however, the implementation of strategy is typically conducted by middle and lower level
managers with review by top management. Sometimes referred to as operational planning,
strategy implementation often involves day-to-day decisions in resource allocation.
a. Programs: A program is a statement of the activities or steps needed to accomplish a single-
use plan. It makes the strategy action oriented. It may involve restructuring the corporation,
changing the company’s internal culture, or beginning a new research effort. For example,
consider Intel Corporation, the microprocessor manufacturer.
b. Budgets: A budget is a statement of a corporation’s programs in terms of money. Used in
planning and control, a budget lists the detailed cost of each program. Many corporations
demand a certain percentage return on investment, often called a’’hurdle rate,” before
management will approve a new program.
c. Procedures: Procedures, sometimes termed Standard Operating Procedures (SOP), are a
system of sequential steps or techniques that describe in detail how a particular task or job is to
be done. They typically detail the various activities that must be carried out in order to complete
the corporation’s programs. For example, Delta Airlines used various procedures to cut costs. To
reduce the number of employees, Delta asked technical experts in hydraulics, metalworking,
avionics, and other trades to design cross-functional works teams. To cut marketing expenses,
Delta instituted a cap on travel agent commissions and emphasized sales to bigger accounts.
Delta also changed its purchasing and food service procedures.

4. Evaluation and Control: Evaluation and control is the process in which corporate activities
and performance results are monitored so that actual performance can be compared with desired
performance. Managers at all levels use the resulting information to take corrective action and
resolve problems. Although evaluation and control is the final major element of strategic
management, it also can pinpoint weaknesses in previously implemented strategic plans and thus
stimulate the entire process to begin again. Performance is the end result of activities. It includes
the actual outcomes of the strategic management process. The practice of strategic management
is justified in terms of its ability to improve an organization s performance, typically measured in
terms of profits and return on investment. For evaluation and Control to be effective, managers
must obtain clear, prompt and unbiased information from the people be low them in the
corporation’s hierarchy. Using this information, managers compare what is actually happening
with what was originally planned in the formulation stage.

Steps involved in policy formulation

1. Environmental Analysis
2. Identification of Policy Alternatives
3. Evaluation of Policy Alternatives
4. Choice of Policy

1. Environmental Analysis: There are basically two environmental factors: internal and
external. The two together provide for identification of problem areas with respect to which the
policies could be made.

2. Identification of Policy Alternatives: The environmental analysis helps to determine the

opportunities and threats facing the company and also its strengths and weakness. When the
organization is engaged in the matching of its strengths with the opportunities, various policy
options emerge.

3. Evaluation of Policy Alternatives: The evaluation of policies is known as policy audit. The
alternatives can be evaluated on the basis of their consequences in terms of their contribution to
corporate goals. Several criteria could be used for evaluation like growth, unit, profitability,
development, organizational goals, etc.

4. Choice of Policy: The evaluation helps in the selection of the best possible policy. If any of
the alternatives are not acceptable and not consistent with company’s objectives, then the process
reverts back to the identification of alternatives where fresh alternatives are looked for. The
search begins again. After the policy has been made, it becomes necessary to review it from time
to time so that it does not become obsolete.

TYPE OF POLICIES: Basically there are three main types of policies

1. Basic Policies: These are framed by the top management and spell out the basic approach of a
company to its activities and its environment.
[Link] Policies: These are framed by the middle level management and are more specific.
They apply to large segments of the organization.
[Link] Policies: These are framed by the foremen and supervisors and are very specific in
nature. They are applicable to routine activities.

Factors Influencing Policies: Policies are framed to help in smoothening the operations of a
business. They are influenced both by internal and external factors.
 1. Objectives and Strategies of the Organization: All policies are framed to facilitate the
achievement of objectives. The objectives and strategies fix the parameters within which the
policies will operate. The policies should be consistent with the organizational goals and
strategies.
2. Organisational Structure: Organisational structure determines the levels of positions and
fixes authority and responsibility of employees. The implementation of policies will be
influenced by the type of organisation structure. A policy will be consistent with the positions
and authority roles in the organisation. Policy determination will certainly be influenced by the
organisational structures.
3. Available Resources: The availability of resources such as human, financial, physical
facilities will influence the formulation of a policy. If a policy implementation requires more
resources than are available in the organisation then it will not be feasible. Rather the resources
will fix the limits beyond which a policy cannot go.
4. Managerial Values:- Managers are the persons who are the prime movers of policies. The
ethics and value systems of managers have a direct influence on the formation and
implementation of policies. For example, if managers believe in honesty and truthfulness then
these things will be reflected in various policies framed by them.
5. Social Factors: A number of social factors also have an influence on the policies of the
organisation. If society wants only quality products, does not tolerate exploitation of consumers,
gives importance to pollution control, all these factors will have to be taken into account while
framing policies for the organisation.
6. Political Factors: Political factors have a great influence on the policies of an organisation.
The framework of business is determined by the party in power. The thinking of a political party
will certainly be reflected in the industrial, fiscal and monetary policies of the government. Every
enterprise has to incorporate government policies into their policies. So political factors have a
direct bearing on organisational policies.

Limitation of Policies:
Policies are the guidelines which may help the managers in their day-to-day working. Policies do
not provide ready-made answers to every problem. They suffer from the following limitations:
1. No Universal Solutions: Policies do not offer universal solutions to all problems. Policies are
framed under particular situations and remain suitable under those circumstances only. The fast
changing economic, social and political situations influence the working of an enterprise. New
policies are required under changed situations. This problem can be met by constantly evaluating
policies. Policies may be modified as per the requirements of new situations.
2. No Instant Solutions: Policies do not provide instant solutions to problems. These are only
guidelines for the decision-makers. The solutions are to be found by the executives themselves.
Policies cannot replace human judgment under any circumstances.
3. Dampen Human Initiation: Too many policies kill the initiative of managers. They become
habituated to act according to policies and do not try to their judgment. Policies also leave little
room for individual initiative.
4. No Substitute for Human Judgment: Policies do not provide standard solution to various
problems. They are only guidelines which help managers in taking decisions. Managers have to
judge the things according to the prevailing environment. Human judgment cannot be substituted
by framing policies meticulously.

STRATEGY: MEANING AND CONCEPT

The word “strategy” is derived from the Greek word “strategos”; stratus meaning army and
“ago” meaning leading or moving, implying, ‘the art of general’. The concept of strategy has
been borrowed from the military and adapted for use in business. In the military, strategy often
refers to manoeuvring troops into position before the enemy actually gets engaged. In this regard,
strategy refers to the deployment of troops. Once the enemy has been engaged, attention shifts to
tactics. Here, the employment of troops is fundamental. Substitute "resources" for troops and the
transfer of the concept to the business world begins to take form. In business, as in the military,
strategy bridges the gap between policy and tactics. Together, strategy and tactics bridge the gap
between ends and means.

To have a better understanding of the concept of strategy, it can be categorized into three distinct
types: Intended, Emergent and Realized Strategy, as propounded by Henry Mintzberg.
An intended strategy is concerned with the intentions of the company. It is the strategy that any
firm in the market wishes to implement. Hence, intended strategies are frequently described
specifically in the organization’s business plan. A strategic plan made for a new
lOMoARcPSD|5582727 firm is known as a business plan. This plan is nothing but a draft
strategy that intends to keep the firm on track. For the same reason it is called intended strategy.

An emergent strategy can be defined as the one that emerges with time. It is not a planned
strategy and is formulated by an organization in response to the diverse unforeseen threats,
opportunities and challenges. Emergent strategies are dynamic and can result in both success and
failure depending on how effectively it is implemented.

A realized strategy is pragmatic in nature. It is the strategy that a firm truly follows. Realized
strategies are frequently a by-product of an organization’s intended strategy, the firm’s deliberate
strategy and its emergent strategy.
FEATURES OF STRATEGY :-
Business Strategy has following characteristics:
1. Involves Choice: Strategy involves the choices that decide the future, nature and direction of
the activities that have to be undertaken by the organization so as to achieve the goals and
objectives.

2. Dynamic: A strategy can never be static. It may have to be changed or modified as per the
changing needs of the business and its environment. It’s all about survival til the end.

3. Top Level Management: Strategies are formulated by the top-level management of the
company. For the implementation of these strategies, the managers at the low level are expected
to act.

4. Strategy relates the firm to its environment: Strategy relates the firm to its environment
predominantly the external environment in all actions whether objective setting, or actions and
resources required for its realization. This highlights the systems approach of management and
treats an organization as part of the society which subsequently gets affected by it.
5. Dependent on Internal/External factors: Strategy as discussed earlier is formulated in a
dynamic environment and hence, is the right combination of factors that are both internal and
external to the environment. The management will have to consider both when deciding upon
any course of action.
6. Action-oriented: Strategy is relative combination of different actions. Actions could be to
meet a particular situation, to solve a specific problem, or to accomplish a desirable objective. It
may take any form because for every situation differs and, therefore, requires a somewhat new or
a different approach

7. Forward Looking: Strategy is future oriented. Any strategic action is needed when
encountered with a new situation, and so strategy is relevant only to the future. It has no
relevance to the past.

8. Tactical: Strategy is often confused with tactic by people but there is a difference between the
two. Strategies define goals to be achieved whereas tactics define the actions one needs to take in
order to achieve those set goals. For example, a strategy would be to double sales in a specific
region whereas a tactic would be to hire more salespeople in that region to attain that goal.

MINTZBERG’S 5PS OF STRATEGY Henry Mintzberg an academician and author on

business and management defined strategy as a method or a plan chosen to bring about a desired
output. Henry Mintzberg suggested that there are five ways in which the term ‘strategy’ is used.
These are called his ‘5Ps for Strategy’
NATURE AND IMPORTANCE OF BUSINESS POLICY & STRATEGY:-
Business Policy is considered as the study of functions and responsibilities of the senior
management related to those organizational problems which could affect the success or failure of
the enterprise. It deals with determining the future course of action that an organization needs to
adopt and with mobilizing the resources which would help the organization to achieve its vision.
Strategic Management and the role it plays in the success of business has been a subject of
painstaking research and study for a long period of time now. Strategic Management makes sure
that goals are set, crucial issues are outlined, time and resources are pivoted, internal
environment is studied, outcomes and results are agreed upon, and the organization gets ready
for any change if required.
An efficient business policy and strategy is important because of the following reasons:

1. Provides a Framework for Proper Planning: Strategies provide the framework for plans by
channelling operating decisions and regularly predefining them. A well-articulated 3 to 5 year
long term view of the company serves to update the annual operating plan. The annual plan then
becomes the stepping stone toward the accomplishment of the longer term goals. If strategies are
formulated cautiously, it will lead to more reliable framework for operational planning.
2. Provides Clarity in Direction: Strategies focus on direction of activities by clarifying what
activities are to be undertaken for achieving organizational objectives. They make the goals and
objectives more clear and specific. It helps in giving a clear, concise and strategically sound
direction to all the workers in the organization and also provides clarity as to how this will be
achieved by giving comprehensive and detailed action plans.
3. Defines Accountabilities: It defines clear lines of authority and accountability and set time
limits for attaining the expected results on the agreed predetermined objectives.  Proper
Planning  Clear Direction  Defines Accountabilities  Organizational Effectiveness 
Prioritizes Activities  Ongoing Decision Making  Personnel Satisfaction  Best Use of
Resources

4. Increases Organizational Effectiveness: Strategies ensure organizational effectiveness in

numerous ways. It is not only essential that resources are put to the best of their efficiency but
also that they are put in a way which ensures their utmost contribution to the organizational
objectives and strategies ensure that resources are deployed in a way as specified.

5. Prioritizes and Aligns Activities: Strategic planning is about making choices, defining
priorities, mobilising and allocating resources to strategic initiatives in order to achieve the
desired results.

6. Provides a Framework for Ongoing Decision Making: In view of the fact that all decisions
must support the strategy, the strategy and the strategic initiatives become the reference point for
further decision-making.

7. Personnel Satisfaction: Strategies contribute towards organization effectiveness by

providing satisfaction to all the people associated with the organization. In companies where
formal strategic management process is followed, people are comparatively more satisfied as
they are clear about their roles, thereby reducing role conflict and role ambiguity, leading to
more satisfaction.

8. Best use of Resources: Well designed strategies help the organisation in making efficient and
optimum allocation and utilisation of resources. All the pros and cons of choosing a particular
course of action over others, is weighed carefully before committing to any decision.