BUSINESS POLICY

  

Business policy as defined by Christensen and others as the study of the function and responsibility of Senior Management. The crucial problems that affect the success of the in the whole organisation and the decisions that determine the direction of the  organisation and shape its future.

Igor Ansoff (1987) makes a difference between strategy and policy.

"strategy is a rule for decision making"

"Policy is a general decision that is always made in the same way whenever the same circumstances arise"

"A strategy applies similar principles but allows different decisions as the circumstances differ"

Wikipedia defines Policy as -

A policy is typically described as a principle or rule to guide decisions and achieve rational outcome(s).Policies are generally adopted by the Board of or senior governance body within an organization where as procedures or protocols would be developed and adopted by senior executive officers. 

Ones a company sets the vision - the description of its future it wants to realize in future, the mission- the statement of its social reasoning, nature of business, product, customer target, technology and its role in society, it becomes necessary to visualize those problems which will come as impediments in accomplishing the mission of the company as a whole.

As a part of strategic management component, business policies are related with those concerns/problems/issues which affect the organisation as a whole and are of general nature. Since company has got a vision to aspire, a mission to pursue it needs to understand the problems which are normally to be recurring during the implementation of strategy.

Few examples of business policies are-

• A company will not consider any cost reduction options if it means

compromising quality.

• A company decides to grow only through retained earnings.

• A company will not consider adding new products with less than

10 percent return on investment.

• A company sells exclusively on cash terms.

• A rental company charges a deposit for rented material.

• A rental car company charges extra money for delivering the rented

car in another location.

• A company hires personnel with experience only.

• A company prepares guidelines on how to collect debts from its customers.

• A company will not question customers’ returns of items purchased

earlier.

• A company responds to 50 percent of customer inquiries within three

working days.

STEPS IN BUSINESS POLICY FORMULATION-More or less  business policy formulation is similar like decision making process. There are following steps in Policy formulation.

I) Environmental Analysis

The first step in the process of policy formulation is environmental analysis. There are basically two environmental factors: internal and external. The external environment of the company comprises of economic, technological, political and social forces operating outside the boundaries of the company. These influence the company indirectly and the company has no control over them. These have to be continuously analyzed and understood before the formulation of polices. The internal environment of the organization comprises of the firm’s employees, the organization structure, resources, value system, functional departments etc. These affect the organization’s activities directly as they are internal to the organization. Both internal and external forces interact and a change in one affects the other one. The two together provide for identification of problem areas with respect to which the policies could be made.

II) Identification of Policy Alternatives

Once the analysis has been done, the next step requires 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. The options or alternatives also arise with the help of past experience, past performance results and the practices followed by the management.

Identification of alternatives has to be done efficiently and then only can they be evaluated for one choice.

III) Evaluation of Policy Alternatives

After the various alternatives have been identified, they are to be evaluated so that the best one could be selected. 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. The evaluation has to be done with care so that errors may not occur. Policy should not only be feasible but it should also be consistent with organization’s goals.

IV) Choice of Policy

The last step in the policy formulation process is the choice of the best alternative from among the various alternatives identified and evaluated. 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.

The various alternatives are compared with each other and the most preferred option is selected. This selected policy has to be tested so that it could be known whether it fits in the organizational boundaries and meets the organizational goals. After being successfully tested, the policy becomes ready for implementation and the manner in which it would be implemented should be explained clearly. 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.

 2.General Policies:- These are framed by the middle level management and are more specific. They apply to large segments of the organization.

3.Specific Policies:- These are framed by the foremen and supervisors and are very specific in nature. They are applicable to routine activities.

COCA-COLA policy document is displayed on its website:- :: www.thecoca-colacompany.com.