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Definitions 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. Some useful definitions of Business Policy 1) A business policy is an implied overall guide setting up boundaries that supply the general limit and direction in which managerial action will take place. 2) A business policy is one, which focuses attention on the strategic allocation of scarce resources. Conceptually speaking strategy is the direction of such resource allocation while planning is the limit of allocation 3) A business policy represents the best thinking of the company management as to how the objectives may be achieved in the prevailing economic and social conditions 4) A business policy is the study of the nature and process of choice about the future of independent enterprises by those responsible for decisions and their implementation 5) The purpose of a business policy is to enable the management to relate properly the organizations work to its environment. Business policies are guides to action or channels to thinking. Business policies generally have a long life. They are established after a careful evaluation of various internal and external factors having an impact on the firms market standing As and when circumstances change in a major way the firm is naturally forced t o shift gears, rethink and reorient its policies. The World Oil crisis during the 70s has forced many manufacturers all over the globe to reverse the existing practices and pursue a policy of manufacturing fuel efficient cars. Therefore, policies should be changed in response to changing environmental and internal system conditions. Types of policies There are many types of policies marketing policies, financial policies, production policies, personnel policies to name a few in every organization. Within each of these areas more specific policies are developed. For example, personnel policies may cover recruitment, training, promotion and retirement policies. Viewed from a systems angle, policies form a hierarchy of guides to managerial thinking. At the top of level policy statements are broad. The management is responsible for developing and approving major comprehensive company policies. Middle managers usually establish less critical policies relating to the operation of their sub units. Policies tend to be more specific at lower levels. The managers job is to ensure the consonance of thes e policies, each must contribute to the objectives of the firms and there should be no conflict between sub system policies

Features of Business Policy

An effective business policy must have following features-

1. 2. 3. 4. 5. 6. 7.


Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates. Appropriate- Policy should be appropriate to the present organizational goal. Simple- A policy should be simple and easily understood by all in the organization. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. 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. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

Importance of Business policy to the organization Employees

Everyone has different approaches and styles. Even the best team of people, acting for the good of their organizations, will find themselves bumping up against each other without coordination. That's why business leaders have to develop rules. To develop consistency, fairness and points of reference, leaders formalize rules and guidelines into written policies. Although they can't eliminate occasional conflicts or issues from arising, policies put many issues in the past and give guidance to help handle future matters.


Inevitably, customers and clients will take issue with the way a business conducts itself. Issues can include refusing to give refunds, not allowing patrons to share meals or requiring passengers to comply with instructions. Of course, companies can't always bend to make the customer happy. That's when policies come in handy. Written, codified policies show customers and clients that a company's stance or actions aren't arbitrary and that they are applied in all situations. This can reduce frustration and support employees who are dealing with upset customers.


Policies provide businesses with important protection against legal action. For example, human resources policies can establish the rules employees must follow and consequences for ignoring them. Thus, when an organization must terminate an employee for misconduct, it can point to policies to back the termination if it must defend itself in a wrongful termination or discrimination lawsuit. Additionally, when someone sues a company for refusing to provide a service or accommodate a customer or community request, the business can show that its decisions weren't impromptu or without reason, but based on its standards of operation and conduct. Courts take policies seriously in evaluating how organizations conduct themselves.


When something new and unexpected arises, policies can provide guidance on how to handle it. Even if a policy doesn't address the issue completely, it may provide a good point of reference. For example, if a company has a policy banning employee use of illegal substances on company time, the policy may be useful in determining how to deal with an employee abusing prescription medication. A manager might say that because the company doesn't tolerate illegal substance use that using a substance outside its prescribed and legal use is also problematic. This may lead to a modification of an existing policy or a new policy to address prescription drug abuse.

Business Policy as a Discipline

The origins of business policy can be traced back to 1911, when Harvard Business School introduced an integrative course in management aimed at the creation of general management capability. This course was based on interactive case studies which had been in use at the school for instructional purposes since 1908. The course was intended to enhance general managerial capability of students. However, the introduction of business policy in the curriculum of business schools / management institutes came much later. In 1969, the American Assembly of Collegiate Schools of Business, a regulatory body for business schools, made the course of business policy, a mandatory requirement for the purpose of recognition. During the next few decades, business policy as a course spread to different management institutes across different nations and become an integral part of management curriculum. Basically, business policy is considered as a capstone, integrative course offered to students who have previously been through a set of core functional area courses. The term 'Business Policy' has been traditionally used though new titles for the course have begun to be introduced in recent years. According to William F Glueck, development in business policy arose from the developments in the use of planning techniques by managers. Starting from day-to-day planning in earlier times, managers tried to anticipate the future through preparation of budgets and using control systems like capital budgeting and management by objectives. With the inability of these techniques to adequately emphasize the role of future, long-range planning came to be used. Soon, long-range planning was replaced by strategic planning, and later by strategic management, a term that is currently used to describe the process of strategic decision making. Business policy, as defined by Christensen and others, is "the study of the functions 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 of policy in business, like those of policy in public affairs, have to do with the choice of purposes, the moulding of organizational identity and character, 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 circumstance. Business Policy tends to emphasize on the rational-analytical aspect of strategic management. It presents a framework for understanding strategic decision making. Such a framework enables a person to make preparations for handling general management responsibilities.

Difference between Policy and Strategy The term policy should not be considered as synonymous to the term strategy. 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. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management.

Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions. Policy is concerned with both thought and actions. While strategy is concerned mostly with action. 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.