Southern University Bangladesh

Business Policy & Strategy

Chapter 1: Introduction to Business Policy
Lesson 1: Nature of Business Policy
1.1 Business Policy
Business policy is the concerned with developing general management point of view
which demands that the manager sublimates his departmental, functional, or specialist
perspective in order to take a balanced company wide look. A policy is a guide to
action. A policy is a definition of common purposes or organization component. Policies
are not always demarcated from the other elements of planning and plans. The process
of strategic planning sometimes encompasses the formulation of important policies.
Policies help to ensure that all units of organization operating under the same ground
rules. They also facilitate coordination and communication between various
organizational units. Policies of competitors are also influence the organizations policies.
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.
Business policy is 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 organization and shape its future. The term policy means
guideline or a course of action. It is actually a general phenomenon. Wheelen and
Hunger (2002, p.14) wrote that Business policy has a general management orientation
and tends primarily to look inward with its concern for properly integrating the
corporations many functional activities. Hence business policy is the general policy
which determines the limits of employees towards different actions. It is general in
nature and is relatively simple.
This comprehensive definition covers many aspects of business policy.
1. It is considered as the study of the functions and responsibilities of the senior
management related to those organizational problems which affect the success of
the total enterprise.
2. It deals with the determination of the future courses of actions that an organization
has to adopt.
3. It involves a choosing the purpose and defining what needs to be done in order to
mould the character and identify of an organizations.
4. It is concerned with the mobilization of resources, which will have the organization
to achieve its goals.
The senior management consists of those managers who are primarily responsible for
long term decisions. These are persons who are not concern with day to day problems

but are expected to devote their time and energy to thinking and deciding about the
future courses of action. With its concern for the determination of the future courses of
action, business policy lay down a long term plan which the organization then follows.
While determining the future courses of action, the senior management has a mental
picture of the type of organization they want their company to become.
While deciding about future courses of actio9n, the senior management are confronted
with a wide array of decisions and actions that could possibly be taken.
The organizational decisions are not made in isolation and managerial actions can be
taken without providing the resource necessary for them. While deciding about the
future courses of actions the senior management concern themselves with the financial,
material, and human resources that would be required for the implementation of the long
term plans.
Other Definitions of Business Policy
Terry and George define business policy A business policy is an implied overall guide
setting up boundaries that supply the general limits and direction in which managerial
action will take place
Hickman C.R. defines business policy as a device which is used to execute the alternate
solution to the second plan.
Rodgers and David C. define business policy A business policy is one which focuses
attention on the strategic allocation of scarce resources: human, financial, physical or
intangible.
It is a principles or group of principles, along with their consequent rules of action that
provide for the successful achievement of specific organization or business objectives.
1.2 Features of Business Policy
An effective business policy must have following features1. Specific- Policy should be specific/definite.
implementation will become difficult.

If

it

is

uncertain,

then

the

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.
1.3 The Purpose of Business Policy
The purpose of business policy is three fold:
a. To integrate the knowledge gain in various functional areas of management
b. To adopt a generalist approach to problem solving and
c. To understand the complex inter-linkages within an organization through the use of
a system approach to decision making and relating this to the changes taken place
in the external environment.

1.4 The Objectives of Business Policy

The objectives of business policy are as follows
1. Integration of functionally specific knowledge. Business policy acts as an
integrated, capstone course demonstrating the interdependencies between
separate functional areas, such as market finance and so on.
2. Understanding the Big Picture. Communicating the appreciation of the
synergy created by managing interdependencies among the functional areas is a
critical objective of business policy.
3. Working in, managing, and leading a team. Working with and managing a
diverse and flexible team is a critical priority with the corporate recruiters.
Business policy tries to build up the team work spirit by illustrating the finer
aspects group dynamics and by bringing together students from different
specialization areas.
4. Enhancement of comprehension and communication skills. Business policy
lays great emphasize on allowing students to be active participants in the learning
process. In contrast to the functional courses, there is a stress on using
methodologies, such as case discussion, and oral and written presentations and
reports.
5. Ability to assess the applicability and relevance of strategic management
research.
1.5 Corporate, Business, & Functional policy
1. Corporate policy describes a companys overall direction in terms of its general
attitude towards growth and the management of its various businesses and product
lines. It typical fit within the three main categories of stability, growth and
retrenchment.

2. Business policy usually occurs at the business unit or product level and it
emphasizes improvement of the competitive position of a corporation products or
services in the specific industry or market segment served by that business unit.
Business strategies may fit within the two overall categories of competitive or
cooperative strategies.
3. Functional policy is the approach taken by a functional area to achieve corporate
and business unit objectives and strategies by maximizing resources productivity. It is
concerned with developing and nurturing a distinctive competence to provide a
company or business unit with a competitive advantage.
1.6 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.
Southern University Bangladesh
Business Policy & Strategy
Chapter 1: Introduction to Business Policy
Lesson 2: Functional Plan and Policies
2.1 Nature of Functional Plan and Policies
Functional strategies operate on a level below the business strategies. There might be
several sub functional areas within functional strategies. For instance, the functional area
of marketing may have sub functions, such as, product development, advertising, sales
promotion, market research, and so on.
Functional plan and policies are the plan or tactics to implement business strategies, are
made within the guidelines which have been set at higher level. Plans are formulated to
select a course of action, while policies are required to act as guidelines to those actions.
Functional plans and policies are therefore, in the nature of the tactics which make a
strategy work.

Functional managers need guidance from the corporate and business strategies in order
to make decisions. In simple term, functional plans tell the functional mangers what has
to be done, while functional policies state how the plans are to be implemented.
2.2 Need for Functional Plans and Policies
Glueck has suggested five reasons to show why functional plans and policies are needed.
Functional plans and policies are developed to ensure:
1. The strategic decisions are implemented by all the parts of an organization.
2. There is a basis available for controlling activities in the different functional areas
of a business.
3. The time spent by functional managers on decision-making may be reduced as the
plans lay down clearly what has to be done and the policies provide the
discretionally framework within which decisions need to be taken.
4. Similar situations occurring in different functional areas are handled by the
functional managers in a consistent manner.
5. Coordination across the different functions takes place where necessary.
2.3 Financial Plans and Policies
The financial plans and policies of an organization are related to the availability, usage,
and management of funds. Strategists need to formulate plans and policies in these
areas so that strategies may be implemented effectively.
Sources of Funds:
Plans and policies related to the sources of funds deals with financing or capital-mix
decisions plans and policies have to made for the following major factors:
a. Capital structure
b. Procurement of Capital and Working Capital Borrowings
c. Reserves and surplus as sources of funds
d. The relationship with lenders, banks, and financial institutions.

Usage of Funds:
Plans and policies for the usage of funds deal with investment or asset-mix decisions.
The important factors that are related here are :
a. Capital Investment
b. Fixed Asset Acquisition
c. Current Assets
d. Loans & Advances
e. Dividend Decision
f. Relationship with Shareholders
Management of Funds:
The management of funds is an important area of financial plans and policies. It basically
deals with decisions related to the systemic aspects of financial management. The major
factors for which plans and policies related to the management of funds have to be
made are:
a. The systems of finance, accounting, and budgeting
b. Management Control system
c. Cash, Credit, & Risk Management

d. Cost control and reduction

e. Tax Planning and Tax Advantages
2.4 Marketing Plans and Policies
Plans and policies related to the marketing have to be formulated and implemented on
the basis of the 4Ps of the marketing mix, that is, product, pricing, place, and promotion.
The major issues related to these marketing mix factors. Questions such as: What types
of product to offer? At what price? Through which distribution channel? And by the use
of which promotional tools? have to be answered.
Product:
Product denote the goods and services that an organization offers to its target markets.
Plans and policies related to products and markets need to be formulated and
implemented on the basis of characteristics, such as, quality, features, choice of models,
brands names, packaging, and so on. Strategies dictate the manner in which product and
market characteristics would be defined. Thus, competitive strategies may be
implemented by stressing on high quality, and better and more features.
Pricing:
Price denotes the money that customers pay in exchange of goods and services. It is
important to the seller because it represents the returns of its efforts. To a buyer, price is
the value that is assigned to the satisfaction of its needs and wants. Several price
characteristics, such as, discount, mode of payment, allowances, payment period, credit
terms, and so on, affect pricing plans and policies.
Place:
Place is the process of by which goods or services are made available to the customers.
Distribution plans and policies address themselves to issues, such as, the channels to be
used, transportation, logistics and storage, inventory management, coverage of markets,
and so on.
Promotion:
Promotion deals with the marketing communication to convey the companys, and its
products or services image to prospective buyers. A promotional mix consist of four
activities: Advertising, personal selling, sales promotion, and publicity.

2.5 Operations Plans and Policies

The plans and policies for operations are related to the production system, operational
planning and control, and R&D.
Production System:
The production system is concerned with the capacity, location, layout, product or
service design, work systems, degree of automation, extent of vertical integration, and
other such factors. Plans and policies related to the production system are significant as
they deal with vital issues affecting the capability of the organization to achieve its
objectives.
Operations Planning and Control:
Plans and policies related to operations planning and control are concerned with
aggregate production planning, materials supply, inventory, cost, and quality
management, and maintenance of plant and equipment.

Research and Development:

Plans and policies for R&D deal with product development, personnel and facilities, level
of technology used, technology transfer and absorption, technological collaboration and
sup[port, and so on.

2.6 Personnel Plans and Policies

Personnel plans and policies relate to the personnel system, organizational and
employee characteristics, and industrial relations.
Personnel:
Plans and policies related to the personnel system deal with factors like manpower
planning, selection, development, compensation, communication, and appraisal. The
importance of such plans and policies lies in the role that personnel systems play in
providing and maintaining human resources.
Organizational and Employee Characteristics:
Organizational and employee characteristics include factors, such as, the corporate
image, quality of manger, staff and workers, perception about and the image of the
organization as an employer, availability of development opportunities, for employees,
working conditions, and so on.
Industrial Relations:
Plans and policies related to industrial relations deal with issues such as unionmanagement relationship, collective bargaining, safety, welfare and security, employee
satisfaction, and morale, and so on.