Nature, Importance and Scope of Business Policy
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:
- 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.
- Casting up an effective well-matched set of general policies for the pursuit of that strategy.
- 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:
- Perception of industry and economic trends that affect the prospects of the economy.
- Clearly understanding the needs, opportunities, threats, strengths, weakness and problems.
- Selecting the best opportunity or opportunities from an array of them, this can cope with the capacity of the company.
- Formulating of a strategy taking into account the opportunity and availability of resources.
- Development of operating plans for the pursuit of the chosen strategy and policies.
- Creation of organizational relationships, organizational climate, and an atmosphere for the proper implementation of policy.
- Evaluating the performance and the progress, and
- 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:
- Policy should be identifiable and clear, either in words or in practice.
- Objectives of the policy should be fully identified and well defined.
- Policy should not be conflicting with other functional and divisional policies of the company.
- The policy should be capable enough to fully exploit the opportunities.
- Policy should be characterized by fairness and honesty with organizational philosophy, objectives, goals and strategy.
- Policy should be appropriate to the desired level of contribution to society.
- Policy should be acceptable to all concerned; i.e., it should be appropriate to the personal values and aspirations of the key managers.
- Policy should constitute a clear stimulus to organizational effort and commitment.
- Policy should always be realistic.