Business Policy: Nature, Scope and Parameters of Business Policy

Business Policy: Nature, Scope and Parameters of Business Policy

As already observed, policies are basically formulated by the two management or the general management for guiding, directing and facilitating the thinking and acting process of the various functional executives, to ensure the best contribution towards the corporate objectives and goals. Policy can either is formal or informal, which can be applied, implied or imposed.

It originates from the top management for the express purpose of guiding themselves and their subordinates to make use of their operational tools as effectively as possible. It also enables to set objectives for the whole organization in general and for the various functional areas in particular.

It is the corporate policy that creates a sense of mission and purpose in the executive value judgment, and in their managerial operations, because a direct and purposeful preparation to face the challenges, opportunities and threats of the day-to-day business activities, is provided by the business policy from time to time.

According to Edmund, the associates’ business policy is concerned with the top management function of:

1. Shaping high-level, long-range corporate objectives and strategic that will be matched, to both company capacities and to external realities in a world marked by rapid technological, economical, social and political change.

2. Casting up an effective well-matched set of general policies for the pursuit of that strategy.

3. Guiding the organization in accordance with that strategy.

The mission of the top management is influenced by the policy at various levels and phases. They are:

1. Perception of industry and economic trends that affect the prospects of the economy.

2. Clearly understanding the needs, opportunities, threats, strengths, weakness and problems.

3. Selecting the best opportunity or opportunities from an array of them, this can cope with the capacity of the company.

4. Formulating of a strategy taking into account the opportunity and availability of resources.

5. Development of operating plans for the pursuit of the chosen strategy and policies.

6. Creation of organizational relationships, organizational climate, and an atmosphere for the proper implementation of policy.

7. Evaluating the performance and the progress, and

8. Periodic re-evaluation of positions in the light of developments within the organization and its environment.

To sum up it can observe that the overall performance of the company depends on the pragmatic policies, and the top management is mainly responsible for the policy formulation.

Business policies cover such a wide variety of subjects and are so broad-based that every possible matter that affects the interests of any one in the organization, the community and the government are included in them.

In fact, business policies cover all the functional areas of business- production, marketing, personnel and finance. These functional areas are generally covered by the term as “major policies” and “minor policies”.

Parameters of Policy

There are certain parameters for business policy, they are:

1. Policy should be identifiable and clear, either in words or in practice.

2. Objectives of the policy should be fully identified and well defined.

3. Policy should not be conflicting with other functional and divisional policies of the company.

4. The policy should be capable enough to fully exploit the opportunities.

5. Policy should be characterized by fairness and honesty with organizational philosophy, objectives, goals and strategy.

6. Policy should be appropriate to the desired level of contribution to society.

7. Policy should be acceptable to all concerned; i.e., it should be appropriate to the personal values and aspirations of the key managers.

8. Policy should constitute a clear stimulus to organizational effort and commitment.

9. Policy should always be realistic.

Importance of Business Policy

A written business policy communicates your company's expectations about appropriate employee work performance. Policy illustrates the acceptable performance boundaries while simultaneously addressing the employees' needs. Some employers prefer a written policy that covers every conceivable situation; others prefer no written policy, whereby management decides each case as the situation merits. Find the ideal balance when creating a business policy for your business.

Balance

The ideal business policy encourages individual productivity without making the employee feel as though you micromanage him. According to Entrepreneur magazine, neither an extremely detailed nor a nonexistent business policy create a highly productive work environment. Put your business expectations in writing, so employees know how to meet your requirements. Address employee goals, and tell him how you expect him to achieve the goals. Once communicated, faithfully enforce, manage and update your business policies.

Job Descriptions

Include in your business policy a description of each position in the organization. Employees must understand their role and how they will interact with others within the organization. Each employee should understand how their work impacts others in the company. Make the reporting structures clear both inside the department, between departments and company wide. Once employees understand their responsibilities, hold them responsible for their work performance. The AME Info website describes business policies as "the strategic link between the company's vision and its day-to-day operations." A well-written business policy allows for management guidance in business operations without constant intervention by management.

Liability

All employees, including managers, must understand the acceptable behavior boundaries at work. Entrepreneur magazine states that when employees misbehave on the job, the employer may be held liable for how that situation affects clients, individuals or other employees. A written business policy with clear behavioral expectations helps establish that you do not approval of and are not contributing to the employee's bad behavior. The lack of a written business policy can lead to litigation.

Consequences for Violations

Establish rules that address any violations of your business policy. Stating the consequences for violating business policy puts the employee on notice and also increases the employer's options for effectively dealing with behaviors contrary to policy. Decide what behaviors mandate an immediate dismissal and what behaviors will trigger a disciplinary approach, and clearly outline the steps involved in your disciplinary procedure. From policy, the employee understands the disciplinary process. When possible, improve the employee's future performance and the company's employee retention rate by helping the employee strengthen a flawed performance, rather than losing him as a valued member of your team.

 Classification of Policies

A number of policies are used in an enterprise in order to attain the organizational objectives. Policies may be classified as follows:

(A) On the Basis of Source

According to their source, origin or emergence, policies may be of the following kinds:

1. Originated Policy

It is also known as formulated policy. It is a policy deliberately formulated by top management to guide decision-making at lower levels, board of directors, the chief executive, the executive committee of the board or heads of the major departments or divisions. Such policies are broad in scope and affect usually the whole organisation or its major segments. These policies are often written ones, typically in the form of a policy manual of the organisation and flow down.

2. Appealed Policy

It is a policy formulated on the appeal or request of subordinates for filling the gaps left by originated policies. In other words, when a subordinates refers an exceptional problem of recurring nature not covered by existing policies, to his superior and appeals for a policy decision. When the superior makes decision in such a case, it becomes a precedent (policy) for future action. Such policies may be formulated at any level and are in the nature of flowing upward policies.

3. Imposed Policy

It is a policy, which an organisation is compelled to adopt due to some outside forces, such as the government and its regulatory agencies, trade association, trade unions.

(B) On the Basis of Functions.

Policies are needed in all areas of business of an enterprise. These may be classified on the basis of different managerial functions as follows:

1. Production Policy

Raw material, purchase policy, repairs and maintenance policy, technology adoption and development policy, quality control policy, inventory policy and research and development policy are some examples in the category. Indent for the purchase of raw materials should be made at least a week in advance is an example of Raw Materials Purchase Policy.

2. Human Resource Policy

Examples in this category are recruitment policy, training policy, employee career development policy, wages and salary policy, placement policy, promotion policy and transfer policy, employee participation policy. Any vacancy shall be filled first by promotion from within the organisation and then, if need be, from outside sources Is an example of Recruitment Policy.

3. Marketing Policy

Capital structure policy, packaging policy, distribution policy, advertising policy, customer service policy, credit policy, market research policy and important examples in this category. Customer’s complaint must be responded within the next day is an example of Customer Service Policy.

4. Finance Policy

Capital structure policy, fixed capital policy, working capital policy, investment policy, research policy, dividend policy are some examples in this category. Excess capital, if any should be invested for short term only, preferably in limited company shares registered in stock exchange is an example of Investment Policy.

5. Accounting Policy

Inventory valuation policy, depreciation policy, provisions policy (for bad debts etc) deferred revenue expenditure policy etc. are examples in this category. Deferred revenue expenditure (e.g., a huge amount spent on advertisment) should be spread over the years of its benefit generation and written off every year accordingly, is an example of Deferred Revenue Expenditure Policy.