BPSM Notes

Definition of Business Policy
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 long-run.
Features of Business Policy
An effective business policy must have following features1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will
become difficult.
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.
Difference 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 follows1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature.
While strategy is concerned with those organizational decisions which have not been
dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy formulation is
basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly with
action.
5. 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.
Scope of strategic management
J. Constable has defined the area addressed by strategic management as "the management processes
and decisions which determine the long-term structure and activities of the organization". This
definition incorporates five key themes:
* Management process. Management process as relate to how strategies are created and changed.
* Management decisions. The decisions must relate clearly to a solution of perceived problems (how
to avoid a threat; how to capitalize on an opportunity).
* Time scales. The strategic time horizon is long. However, it for company in real trouble can be very
short.
* Structure of the organization. An organization is managed by people within a structure. The
decisions which result from the way that managers work together within the structure can result in
strategic change.
* Activities of the organization. This is a potentially limitless area of study and we normally shall
centre upon all activities which affect the organization.
Importance of Business Policies

A company operates consistently, both internally and externally when the policies are established.
Business policies should be set up before hiring the first employee in the organisation. It deals with
the constraints of real-life business.
It is important to formulate policies to achieve the organisational objectives. The policies are
articulated by the management. Policies serve as a guidance to administer activities that are repetitive
in nature. It channels the thinking and action in decision making. It is a mechanism adopted by the top
management to ensure that the activities are performed in the desired way. The complete process of
management is organised by business policies.
Business policies are important due to the following reasons:
Coordination Reliable policies coordinate the purpose by focusing on organisational

activities. This helps in ensuring uniformity of action throughout the organisation. Policies encourage
cooperation and promote initiative.
Quick decisions Policies help subordinates to take prompt action and quick decisions. They
demarcate the section within which decisions are to be taken. They help subordinates to take decisions
with confidence without consulting their superiors every time. Every policy is a guide to activities that
should be followed in a particular situation. It saves time by predicting frequent problems and
providing ways to solve them.
Effective control Policies provide logical basis for assessing performance. They ensure that
the activities are synchronised with the objectives of the organisation. It prevents divergence from the
planned course of action. The management tends to deviate from the objective if policies are not
defined precisely. This affects the overall efficiency of the organisation. Policies are derived
objectives and provide the outline for procedures.
Decentralisation Well defined policies help in decentralisation as the executive roles and
responsibility are clearly identified. Authority is delegated to the executives who refer the policies to
work efficiently. The required managerial procedures can be derived from the given policies. Policies
provide guidelines to the executives to help them in determining the suitable actions which are within
the limits of the stated policies. Policies contribute in building coordination in larger organisations.

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Definition of Business Policy

Importance of Business Policies

Coordination Reliable policies coordinate the purpose by focusing on organisational

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