BUSINESS POLICY AND STRATEGY

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

 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- 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 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 investigate it for guidance

Importance of Business Policy

  Better Coordination - Policies control everything in an organisation. It means that similar actions
will have the same outcome. Employees can anticipate every course of action in the company. It
leads to better coordination between the various departments. As all the workers know how
processes should be performed, there is no discord between departments. When there is
uniform action, all the activities will lead to the achievement of company objectives. It also
results in stimulating initiatives by employees. A clear business policy and strategic management
result in everyone working towards a common goal.
 Quick Decision Making- Managers at all levels need to make decisions about department
activities. Having a clear business policy helps these people decide on matters without any
doubt because the policy lays everything down. They need not go to their superior every time
they must decide. As part of the business policy and strategic management, companies also lay
down the limits of the decisions employees at each level can make. Lower-level managers also
gain confidence and become ready to take up more responsibilities.
 Effective Control - A well-defined business policy gives the top management control over all
activities in the firm. When there are clear directions about how things must happen in an
organization, it makes it easy for the top management to assess the performance of every
employee. Moreover, it also gives the managers more control over how things work in the firm.
There are no deviations from the methods that are laid down. When there is firm business
policy and strategic management, it is easy to find deviations and correct them immediately.
 Decentralization - A business policy mentions the roles and responsibilities of every employee in
the firm. It means that there is no need for constant supervision from the managers. Decision-
making is also left to the managers of each department, leaving the top management with
enough time to plan the firm’s development and other creative activities. Managers get control
over employees, and this delegation of authority helps in improved efficiency as there is
supervision at every level.
 Good Office Atmosphere - Business policies have precise guidelines about how each employee
must behave in the office and what roles they must play. It helps to develop a warm and
harmonious office environment. As their duties are laid down, there is no confusion about the
workers’ role, which avoids unnecessary disputes. Business policy and strategic management
ensure that every staff member fulfils their responsibilities and works towards achieving
company objectives.
 Cost Reduction - Cost reduction is necessary for every company as the market becomes more
competitive. It can be achieved only if systems are in place to purchase raw materials and
services. A clear business policy lays down guidelines about selecting vendors and purchasing
goods by the firm. Such policies help the company get the best prices for the items it purchases.
Having clear purchase policies also helps to ensure there is no fraud or misuse of funds. Proper
procedures must be followed, and this results in transparency in purchases.

Definition of Strategy

 The word “strategy” is derived from the Greek word “stratgos”; stratus (meaning army) and
“ago” (meaning leading/moving).
 Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
 components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.
 Strategy is the blueprint of decisions in an organization that shows its objectives and goals,
reduces the key policies, and plans for achieving these goals, and defines the business the
company is to carry on, the type of economic and human organization it wants to be, and the
contribution it plans to make to its shareholders, customers, and society at large.
 Strategy is a well-defined roadmap of an organization. It defines the overall mission, vision and
direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.

Features of Strategy

 Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
 Strategy deals with long term developments rather than routine operations, i.e., it deals with
probability of innovations or new products, new methods of productions, or new markets to be
developed in future.
 Strategy is created to consider the probable behavior of customers and competitors. Strategies
dealing with employees will predict the employee behavior.

5 Reasons Why Strategy is Important

When we first started strategic planning work over 20 years ago, a client and good friend said that
succeeding in strategy management is hard work. It takes time, resources, and distracts from the
urgency of running the day-to-day business. Today we would totally disagree. After working with over
200 clients on a wide range of strategy management projects, we have confirmed that there are a
multitude of benefits to having and working a strategy in organizations. Those CEOs and owners that
recognized the value of having a strategy and made the commitment of time and resources to manage
its execution consistently improved their performance.

1. Planning – Creating and tracking progress against an annual operating plan is an essential
management tool for any company. What is often missing is the relationship these plans have to the
future. Too often annual operating plans are created from the rear view mirror. What happened last
year and where should we go in the coming year? These are all good intentions. However, without a
clear picture of what you want the future to look like, it will always be more reactive than proactive. A
well-articulated 3 to 5 year long term view of the company should serve to inform the annual operating
plan. The annual plan then becomes the stepping stone toward the achievement of the longer term
goals.

2. Strengths and Weaknesses – At first glance this seems too obvious and you are saying to yourself, “Of
course we know what our strengths and weaknesses are!” We cannot disagree. No one knows your
business better than you. On the other hand, are you leveraging strengths (competitive advantages) and
do you have plans to close capability gaps in your organization (weaknesses)? Strategy creates a higher
level of awareness and provides greater focus on activities that will make the organization more
successful.
3. Skills & Knowledge – If you know where you want to take your business over the long term, you will
have a much better idea of the kinds of capabilities you will need to achieve your goals. Strategy defines
and drives decisions in organizational design. Therefore by proactively pursuing new skills and
knowledge, you prepare the organization for the intended future state and your odds of success
increase.

4. Resource allocation – One thing is clear about any company, large and small—resources are finite. We
wish they were infinite, but that will never be the case. Strategy is about making choices. What
products, services and markets will be a part of the future and what we should not do? These types of
decisions are critical to ensuring that limited resources are being deployed to the most promising
opportunities that will provide the greatest return.

5. Environmental Scan – Too many CEOs don’t take the time to truly know the external environment
that can have a positive or negative impact on performance. This is not to say that leaders are not in
tune with their customers, or not aware of their competition. The question is, how thorough an analysis
are they doing? Jack Welch had it right when he asked his division leaders to dig deep to understand
how things might change before they really happened. Being aware and prepared for potential shifts in
your market or industry provides the opportunity to take action before it happens.

1. Provides Direction and Action Plans

It establishes in a clear, concise and strategically sound way

the direction for the organization

how this will be achieved, including detailed action plans

2. Prioritizes and Aligns Activities

Strategic planning is about making choices, establishing priorities, allocating resources to strategic
initiatives and coordinating to achieve desired results.

3. Defines Accountabilities

It defines clear lines of accountability and timelines for achieving expected results on the agreed
strategic initiatives.

4. Enhances Communication and Commitment

In clarifying the vision and accountabilities, the strategic plan increases the alignment of all
organizational activities and fosters commitment at all levels.

5. Provides a Framework for Ongoing Decision Making

Since all decisions should support the strategy, the strategy and the strategic initiatives are the
reference point for decision-making.

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 follows:
  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.

Comparison Chart
What Is Strategic Management?

While policies dictate how the company and its employees must function, strategic management lays
down the path for the organization to operate to achieve its objectives. Strategic management is also
formulated by the company’s top management, often in discussion with heads of various departments.
Both business policy and strategic management apply to every department and employee of the firm.
Strategic management includes many activities like setting objectives, analyzing the firm’s strengths,
studying the competition, evaluating strategies, and ensuring that the strategies are followed across the
firm.

Four Steps to Strategic Management

1. Environmental Scanning – The company collects information about both internal and external
factors and analyses them to formulate strategies.
2. Strategy Formulation – After scanning the environment, the company formulates the strategy
for achieving the goals of the organisation. There are corporate, business, and functional
strategies in every firm.
3. Strategy Implementation – The company must implement the strategy it has formulated. This
includes designing the firm’s structure, distributing resourcing, developing decision-making
processes, and managing human resources.
4. Strategy Evaluation – In this last step of the strategic management process, the top
management assesses how the strategies have been implemented and what results in the firm
has achieved. This exercise ensures that the implementation meets organisational objectives.

Levels Of Strategic Management

In companies with multiple products and business units, there are mostly different levels of strategic
management. When the business policy and strategic management are formulated, these levels are
defined.
  Corporate Strategy - This is the strategy for the whole organization. It addresses various
questions like what the purpose of is establishing the company, what products it wants to sell
and how to get into new businesses or expand the current one. The corporate strategy is usually
formulated by the top management, including the CEO, the board of directors and the chiefs of
functional areas.
 SBU Strategy - This pertains to the strategies for a particular business unit in the organization or
a specific mix of products. It will answer questions about the improvement of business in that
product or customer segment. The SBU strategy is also in line with the corporate strategy. It will
help the business unit compete in the market and contribute to the overall success of the firm.
 Functional Strategies - As the name suggests this pertains to different functional areas like
finance, marketing, production, or human resources. It helps in ensuring that every area of the
company functions efficiently and contributes to the achievement of company objectives.
Functional strategies are formulated by the heads of those functional areas.

Features Of Strategy Management

 Efficient Top Management – Strategic management necessitates the presence of highly efficient
professionals in senior management roles as they must make critical decisions.
 Sufficient Resource Availability – There must be sufficient availability of resources like
workforce and logistics if the company must implement strategic management properly. The top
management allocates and re-allocates resources across departments during the
implementation of strategic management.
 Dynamic Business Environment – Strategic management happens in a dynamic company. It
must be able to accept and adapt to financial, technological, or legal changes.
 Future-Oriented – This type of management needs the company to find solutions for complex
and uncertain problems. It must be done by selecting the best option, keeping in mind future
predictions and projections.
 Long-Term Benefits – Strategic management affects various functions in an organization and the
long-term success of the company. Companies see great success in the long term when
implementing strategic management.

Benefits Of Strategic Management

  Creates A Proactive Organization- Adopting the business policy and strategic management
system helps a company become proactive. It allows the organization to foresee future events
and become prepared for them. They can anticipate unfavorable events and prepare to face
them with very little financial loss. A proactive firm is always faster to be back on track after any
disaster.
 Gives A Sense of Direction - Companies must strive to achieve their business goals and strategic
management helps in providing the right direction towards that. It helps in setting up realistic
goals that align with the vision and mission of the establishment.
 Improves Operational Efficiency - Operational efficiency increases when companies adopt
strategic management. All discussions and decisions travel in the direction of achieving
objectives with the best use of available resources. Strategic management aligns all functional
areas of the company resulting in better efficiency.
 Better Market Share and Profitability - Adopting a strategic management system helps
companies get better insights into market trends, consumer behavior and competitor activities.
Knowing this enables the company to turn all sales and marketing efforts to ensure better
market share and increased profitability.
 Makes Businesses More Durable- An organization can run into various troubles in its journey. A
company that is performing very well presently can run into losses shortly. It has been proved
that companies that adopted the strategic management method are better prepared to face
difficult times and come out of them unscathed.

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