Introduction Business Policy

Nature Of Business Policy

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 problems in BP have to do with choice of purposes, moulding of
organization character and identity, the continuous definition of what needs to be done, and the
mobilization of resources for the attainment of goals in the face of competition or adverse
circumstances.

BP is considered as the study of functions and responsibilities of the senior management related to
those organizational problems which affect the success of the total enterprise.

It deals with the determination of the future course of action that an organization has to adopt.

In choosing the purpose and defining what needs to be done in order to mould the character and
identity of an organization.

It is also concerned with mobilization of resources which will help organization to achieve its goal.

The senior management consists of those managers who are primarily responsible for long term
decisions and who carry designations such as CEO, President, GM or Executive Director.

Deciding a future course of action, the senior mgt are confronted with a wide array of decisions and
actions that could possibly be taken. By moving in a pre-determined direction, an organization can attain
its planned identity and character.

Importance of Business policy

1. Learning: Business Policy seeks to integrate the knowledge and experience gained in various
functional areas of management. It enables the learner to understand and make sense of the
complex interaction between different functional areas.

Business policy deals with the constraints and complexities of real-life businesses. In contrast, the
functional are course are based on a structured, specialized and well developed body of knowledge,
resulting from a simplification of the complex overall tasks and responsibilities of management.

To develop a theoretical structure of its own, business policy cuts across the narrow functional
boundaries and draws upon a variety of sources – other courses in the management curriculum and a
wide variety of disciplines, like economics, sociology, psychology, political science and so on.

BP makes study and practices of management more meaningful as one can view business decision
making in its proper perspective. For instance in the context of business policy , a short term gain for
department or a sub-unit is willingly sacrificed in the interest of the long term benefit that may accrue to
the organization.
 2. Business Environment: BP helps to make the study and practice of management more
meaningful as one can view business decision making in its proper perspective. Short term gains
for the department may be sacrificed in the interest of the long term benefit that may accrue to
the organization as a whole.
3. Understanding the organization : BP helps to create an understanding of how policies are
formulated. It helps in creating an appreciation of the complexities of the environment that are
faced by the senior management.
4. Personal Development : beneficial for an executive to understand the impact of policy shifts on
the status of one’s department and the position one occupies. Understanding of BP enables an
executive to avail of an opportunity or avoid a risk with regard to career planning and
development.

BP offers a unique perspective to executives to understand the senior management’s view point.

Purpose of Business Policy

A business policy course seeks to integrate the knowledge gained in various functional areas so as to
develop a generalist approach in management studies. Such an approach helps in viewing management
organizational problem in totality. A generalists is better qualified to deal with the organizational
problems. Purpose of BP is three fold

1. To integrate the knowledge gained in various functional areas of management

2. Adopt a generalist approach to problem solving
3. Understand the complex interlinkages operating within an org. through the use of systems
approach to decision making and relating these to the changes taking place in the external
environment.

Objectives

1. In terms of knowledge:

The various concepts like strategy, policies, plan and programmes are encountered in the functional
area courses too. It is imperative to understand these concepts specifically in the BP.

Through the tools of analysis and diagnosis a learner can understand the environment in which a firm
operates.

Information about the environment helps in the determination of the mission, objectives and strategies
of the firm. Learner appreciates the manner in which strategy is formulated.

Implementation of strategy is complex and the most difficult part of strategic management. Through BP
the learner can help visualize the implementation
A general approach helps in dealing with a wide variety of situations. The development of such an
approach helps in problem solving and decision making even though real life business are unique and so
are the solutions.

2. Skills

Attainment of knowledge should lead to skills in order to apply what has been learnt. This can take place
by an analysis and interpretation of case studies as well as business event.

Develop analytical skills.

Develop skill of identifying the factors relevant in decision making. Analysis of SWOT and suggestion of
appropriate strategies and policies form the core content of General Management decision making.

3. Attitude

Inculcation of appropriate attitude amongst learners (development of a generalist)

Function under partial ignorance conditions. In long range planning especially the manager has to make
do with incomplete information.

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Process of Strategic Management

Strategic decision making is carried out through the process of strategic management. In strategic
management the emphasis is on those general management responsibilities which are essential to
relate the organization to the environment in such a way that its objectives may be achieved.

There are 4 essential phases in the strategic management process which are:

 Establishment of the hierarchy of strategic intent

 Formulation of strategies
 Implementation of strategies
 Performing strategic evaluation and control

While these phases are sequentially linked to each other and each successive phase provides a feedback
to the previous phases, in practice the different phases of strategic management may not be clearly
differentiable from each other. In fact they should be called phases rather than steps/stages.

1. Establishment of the hierarchy of strategic intent :

 Creating and communicating a vision
 Designing a mission statement
 Defining the business
 Setting objectives
 2. Formulation of Strategies:
 Performing environment appraisal
 Doing organizational appraisal
 Considering corporate level strategies
 Considering business level strategies
 Undertaking strategic analysis
 Exercising strategic choice
 Formulating strategies
 Preparing a strategic plan

3. Implementation of strategies :
 Activating strategies
 Designing structures and systems
 Managing behavioral implementation
 Managing functional implementation
 Operationalising strategies

4. Performing Strategic evaluation and control

 Performing strategic evaluation
 Exercising strategic control
 Reformulating strategies

Understanding Strategy

Strategy word is derived from the word “ strategos” meaning the art of general. Different concepts and
meaning

Chandler defined strategy as : (1)the determination of the basic long term goals and objectives of an
enterprise and the(2) adaptation of the courses of action and (3) allocation of resources necessary for
carrying out these goals.

Igor Ansoff is a well known authority explained the concept of strategy as “the common thread among
the organization’s activities and product markets that defines the essential nature of business that the
organization was or planned to be in future.

Glueck defined strategy as unified, comprehensive and integrated plan designed to assure that the basic
objectives of the enterprise are achieved.

Mintzberg : strategy as a pattern in a stream of decisions and actions. They emerge from an
Organization without any formal plan. He distinguishes between intended strategy(plans that managers
develop) and emergent strategy( actions that actually take place over a period of time)
Porter: developing and communicating the company’s unique position , making trade offs and forging fit
among activities.

Putting all these together :

- Plan or course of action or a set of decision rules forming a pattern or creating a common
thread.
- Pattern of common thread related to the org. activities which are derived from its policies,
objectives and goals
- Related to pursuing those activities that move an organization from its current position to a
desired future state.
- Concerned with the resources necessary for implementing a plan or following a course of action
- Connected with the strategic positioning of the firm –making trade offs between its different
activities and creating a fit among these activities.

Level at which strategic operates:

Corporate level: Structure // Strategy

SBU level// Business level strategy

Function level// functional level

Societal level: generalized view of how the corporation relates itself to the society in terms of a
particular need/set of need it strives to fulfill. Corporate level strategy would then be based on societal
strategy. Some strategies would be set at the lower level than functional level – functional area would
have a number of operation strategies. They would deal with a highly specific and narrowly defined
area. The functional strategy at the marketing level would have a number of operational strategies for
sales, advertising, distribution and pricing. Activities in each of these would be performed in such a way
that they contribute to the functional objective of the marketing department.

The functional strategy of marketing would be interlinked with those of finance, production and
personnel departments. All these functional strategies would operate under the SBU level. Different SBU
levels will operate under corporate strategy level which in turn is derived from the societal level of a
corporation.

Strategic decision making : decision making is the most important decision of any manager. While
strategic decision making pertains to the responsibilities of the senior management.

Issues in Strategic decision making : Strategic decision making is a complex process, it is difficult to
perform, and cannot be analysed and explained easily. However the issues related to it are as given
below :

Criteria for decision making : The process of decision making requires objective setting. Obbjectives
serve as a criteria for decision making. 3 major viewpoints regarding setting criteria for decision making:
a) The first is the concept of maximization. Behavior of the firm is oriented towards achieving these
objectives and in the process maximizing its returns
b) Concept of satisficing, which envisages setting of objectives in such a manner that the firm can
achieve them realistically through a process of optimization.
c) Incrementalism : Behavior of the firm is compelx and the process of decision making which
includes objective setting is essentially a continually evolving political consensus building. The
firm moves towards its objectives is small, logical and incremental steps.

Rationality in decision making : exercising a choice from amongst the various alternative courses of
action in such a way that it may lead to the achievement of the objectives in the best possible
manner. Profit Maximisers consider a rational decision to be one which leads to profit maximization.
While satisfying concept believe that the rationality takes into account the constraints under which
a decision maker operates. Incrementalists are of the view that growth happens in steps ,slowly over
time.