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UNIT II
Policy Formulation and Implementation - Policy Formulation- Objective- Direction - Consideration of
Change- Business Policy Concepts- Business Policy – Characteristics importance- Different Types of
Policies – Classification – Strategies – Programmes - Procedures and Rules M.B.O/ M.B.E- Major and
Minor Policies - Supporting Composite and Contingency policies - Parameter of Policy- Development of
Business Policy - SWOT Analysis - Elements of Business Policy - Implementation of Policy

Business Policy Process:

Four most important business policy process are:
1. Environmental Scanning
2. Policy Formulation
3. Policy Implementation
4. Evaluation and Control.

1. Environmental Scanning:
Environmental scanning is the monitoring, evaluating and disseminating of information from the external
and internal environments to key people within the corporation. Its purpose is to identify strategic factors
those external and internal elements that will determine the future of the corporation.
The simplest way to conduct environmental scanning is through SWOT analysis. SWOT is an acronym
used to describe those particular Strengths, Weaknesses, Opportunities and Threats that are strategic factors
for a specific company.

2. Policy Formulation:
Policy formulation is the development of long-range plans for the effective management of environmental
opportunities and threats, in light of corporate strengths and weaknesses. It includes defining the corporate
mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

3. Policy Implementation:

Policy implementation is the process by which strategies and policies are put into action through the
development of programs, budgets and procedures. This process might involve changes within the overall
culture, structure, and /or management system of the entire organization. Except when such drastic
corporate-wide changes are needed, however, the implementation of strategy is typically conducted by
middle and lower level managers with review by top management. Sometimes referred to as operational
planning, strategy implementation often involves day-to-day decisions in resource allocation.

4. Evaluation and Control:

Evaluation and control is the process in which corporate activities and performance results are monitored
so that actual performance can be compared with desired performance. Managers at all levels use the
resulting information to take corrective action and resolve problems. Although evaluation and control is the
final major element of strategic management, it also can pinpoint weaknesses in previously implemented
strategic plans and thus stimulate the entire process to begin again.

Performance is the end result of activities. It includes the actual outcomes of the strategic management
process. The practice of strategic management is justified in terms of its ability to improve an organization s
performance, typically measured in terms of profits and return on investment.

For evaluation and Control to be effective, managers must obtain clear, prompt and unbiased information
from the people be low them in the corporation’s hierarchy. Using this information, managers compare what
is actually happening with what was originally planned in the formulation stage.

The evaluation and control of performance completes the strategic management model. Based on
performance results, management may need to make adjustments in its strategy formulation, in
implementation, or in both.
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Process of Policy Formulation:

Policy formulation is an important aspect of planning. The smooth working of an organization requires
the formulation of policies. A well thought exercise is essential to formulate sound policies.

Following process should be followed for formulating a policy:

1. Defining Policy Area:

The area for which a policy is to be framed should be defined. The objectives and needs of the
organization should be kept in mind while specifying the policy area. While framing a marketing policy, the
marketing expectations and thrust areas should be kept in mind. The scope of the policy will depend upon
the area which it is supposed to cover. So first thing in policy framing is to decide the area which it will
cover.
2. Identifying Policy Alternatives:
The second step in policy formulation is the identification of policy alternatives. The alternatives should
be decided on the basis of an analysis of external and internal environment. The internal environment will
tell about the strengths and weaknesses of the organization while external environment will reveal
opportunities and level of competition. Every alternative must ensure that the objective of the policy will be
achieved.

3. Evaluating Alternatives:
All the alternatives are evolved in the light of organizational objectives. It should be analysed as to what
contribution these alternatives will make in helping the organization for achieving its objectives. The factors
like cost, benefits, resource requirement of each alternative should be properly assessed. The effect of
various alternatives on the environment of the organization should also be analysed.

4. Selection of a Policy:
After proper evaluation, most appropriate alternative is selected. The selection of a policy is a long term
commitment. In case the alternatives do not look satisfactory then efforts should be made to develop other
alternatives.

5. Trial Run of a Policy:

The policy should be implemented on a trial basis. It should be assessed if the policy is achieving the
desired objectives. There may be suggestions during the test run, these should be used to modify the policy.
Ultimately the policy should achieve the desired results otherwise a new policy alternative should be thought
of.

6. Implementing Policy:
If the policy is finally alright it should be implemented. The policy should be explained to those who are
to implement it. There should be a proper discussion about the implications and impact of various clauses or
provisions of the policy. Proper communication of the purpose and objective of the policy will help it in its
implementation.

TYPE OF POLICIES:
Basically there are three main types of policies
1. Basic Policies: These are framed by the top management and spell out the basic approach of a company
to its activities and its environment.
2. General Policies: These are framed by the middle level management and are more specific. They apply
to large segments of the organization.
3. Specific Policies: These are framed by the foremen and supervisors and are very specific in nature. They
are applicable to routine activities.
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There are three types of policies, for the achievement of the objectives of the organization. They are
as follows: 1. Major Polices. 2. Minor Policies. 3. Supporting, Composite and Contingency Policies.

Major Polices:
The major policies are, (1) Corporate Leadership Policy, (2) Overall Cost Leadership Policy, (3)
Differentiation Policy, (4) Subsistence Policy, (5) Competitive Policy, (6) Focus Policy and (7) Profit
Maximization Policy.

Corporate Leadership Policy is formulated to establish a leadership position for the company in the
whole of industry in all respects, say highest output, maximum turnover, maximum investment, best
technology, best climate, highest market share, etc.

Overall Cost Leadership Policy strives to maintain the overall cost leadership across the company’s
product line in the industry, while producing quality products. This position is achieved through a number
of supporting functional policies and strategies.

In the Differentiation Policy, the company strives to be distinctive in an important aspect of its
products or services that the customer values”. Cost are kept close to those of competitors, while the
chosen form of differentiation is emphasized to specifically identify the distinctive, feature of the product.

Subsistence Policy strives, basically to subsist or just to survive. Many of the new entrants in the Indian
Industry are going ahead with this policy.

Competitive Policy is the one, which is adopted just to compete with a particular product or producer.

Focus Policy is meant for concentrating its entire efforts at serving a distinctively defined market
segment, since the product cannot remain low-cost. Though the products cannot achieve industry wise
competitive advantage due to higher cost, it world is able to focus itself to a given segment of the market
through its focus policy. Sometimes it may serve only a selected territory of the market in order to serve the
problem of cost disadvantages.

Profit Maximization Policy is formulated with the sole objective of maximizing the profit by hook or
by crook.

Minor Policies
Minor policies can either be Low-Growth Policies or Forced-Growth Policies. The Low Growth Policies
may include (1) No Change Policy, (2) Retreat Policy and (3) Focus On Limited Special Opportunity
Policy.
A properly identified and checked out policy can be closely monitored, fine-tuned for minor defects, and
managed for maximum cash flows, with low investment on forced growth. However, in order to meet the
unexpected change, defensive contingencies will be designed. Efficient implementation will be the focus of
top-management attention. This can be known as No Change Policy, which may prove to be effective
during the period of recessions and tight market positions. But during the heyday of ‘more is better’
situation, instead of ‘no change’ or ‘low change’ approach, ‘more growth’ policy would be more
appropriate.

No Change Policy has the attraction of not investing considerably on growth while good profit may be
made on the basis of the companies past glory, and a low cost mechanism. Growth goals are invariably
modest during the implementation of ‘No Change Policy’.

Retreat Policy on the other hand, enables to withdraw much of the business that may lead to dangerous
situation. Business operations will be limited and kept within absolute control. This is a via media for
companies, which are in trouble for saving them from possible liquidation. It is better for such companies
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to retreat until the opportune time comes, while limited operation may go on with a view to maintain the
continuity of operation.

Focus on Limited Special Opportunity Policy stresses concentration only on a profitable specialty
product, or a limited but significant market niche. However, in the long run such policy is bound to give
way for a more elaborate product policy or marketing strategy. Success in a narrow line almost always
tempts a company to broaden its line.

Forced-Growth Policy may include, (1) Acquisition of Competitors Policy, (2) Vertical Integration
Policy, (3) Geographical Expansion Policy and (4) Diversification Policy.

Acquisition of Competitors Policy, a company with a successful strategy and proven growth record will
have the temptation, rather motivation, to acquire comparatively small competitors in the same business,
subject to the MRTP Act (taking over of sick units or units in backward areas, would have different
considerations). In such cases a strategy will be adopted to take the total company a single business.

Vertical Integration is a “conservative growth strategy, keeping a company close to its core competence
and experience in its industry, consists of moving backward via acquisition or internal development to
sources of supply and forward towards the ultimate customer.” The strategy of an automobile manufacturer
to acquire an automobile tire-manufacturing unit can be considered as vertical integration strategy.

Geographical Expansion Policy can lead to geographic enlargement or enlargement of territory. A

company that builds up new plants in additional locations or expanding market, other than what they
originally operate makes a geographical expansion. Expanding the market to export market or
establishment of plants and marketing activities overseas can also be considered as geographical expansion.

Diversification Policy is also a part of closed growth strategy. From minor additions to basic product
line and completely unrelated business can come under diversification. Internal research and development
or purchase of new product ideas or technology, as well as the acquisition of companies, and any such shift
from one business to other can come under diversification.

Supporting, Composite and Contingency Policies:

In addition to major and minor policies, there would be occasions for many of the companies to
formulate supporting and contingency policies also. Support policies are the subsidiary policies adopted in
support of the main policies.
The polices, which are implemented to achieve subsidiary objectives, which would help the
achievement of the main objectives, can be considered supporting objectives. In support of the market
leadership policy, one can adopt an economic pricing policy.
On the other hand, a composite policy has a number of component or constituent policies. For example:
overall cost leadership policy may consist of a particular material handling policy, inventory policy,
personnel policy, purchase policy, financial policy, transporting policy, etc.
Contingency policy, at the same time, may be useful for tackling contingency problems. There is
possibility for uncertainty of occurrences and unforeseen events, in business, for which contingency
policies are needed.

Objectives of Policies:
Policies are regarded as important for realizing the objectives of the organization. They also ensure co-
ordination of efforts and activities in the enterprise.
The policies are formulated with the following objectives:
1. The main objective of policies is to ensure that there is no deviation from the planned course of
action. The framework is set within which everybody is expected to work. Policies ensure that the
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broad guides for action are adhered to.

2. Since policies chalk out a framework for each and every person, it ensures proper delegation of
authority also. A manager knows the extent of authority required by a subordinate to undertake the
work allotted to him. Policies serve the purpose of delegating adequate authority downwards.
3. Policies allow the scope for interpretation. The main aspects are given in a policy but the actual mode
of implementation is decided by the concerned person.
4. Policies are helpful for future planning also. The impact and influence of policies help in thinking
about the future.
5. Policies also ensure consistency of action. The guidelines are similar for everybody and actions must
conform to the broad outlines.

Points to be Considered in Policy Formulation (Direction for Policy Formulation):

While framing policies, following aspects should be taken into consideration:

1. Organizational Goals:
The policies are formed to achieve organizational goals. The goals are the targets which are to be
achieved and policies devise ways of reaching them. Policies should assist by basing the mon relevant facts
and figures and not on mere guess work.
2. Proper Participation:
Policies should be framed by the participation of persons at various levels of management. If policies are
framed at top level without knowing the views of those for whom these are meant then there is likelihood
that policies may not achieve the desired results. To ensure successful implementation of policies, there is a
need for joint participation at the time of formulating them.

3. Reflect Business Environment:

The policies should be based on the internal and external environment. The situation prevailing inside and
outside will provide a realistic base for policies. The policies should have the flexibility for adjustment if
there is a change in business environment. Any type of rigidity followed in policies will defeat their purpose.

4. Consistency:
Various policies of an enterprise should conform to each other. There should be no inconsistency among
various policies. If there is inconsistency among policies, then these will be implemented. It must be ensured
that policies are related to enterprise objectives and do not give conflicting guidelines.

5. Proper Communication:
The policies should be properly communicated to each level of management. If the policies are not
properly known by those who are to implement them then there will be no use of such policies. Sometimes
policies may not be well understood, there may be some doubt in the minds of persons, it will be the duty of
management to clarify them and provide proper clarification.

6. In Writing:
The policies should always be in writing. This will ensure their proper and correct implementation. If the
policies are not in writing, then a dispute may arise about their contents and purpose. The language of
policies should also be simple so that it is well understood by concerned persons.

Factors Influencing Policies:

Policies are framed to help in smoothening the operations of a business. They are influenced both by
internal and external factors.

1. Objectives and Strategies of the Organization:

All policies are framed to facilitate the achievement of objectives. The objectives and strategies fix the
parameters within which the policies will operate. The policies should be consistent with the organizational
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goals and strategies.

2. Organisational Structure:
Organisational structure determines the levels of positions and fixes authority and responsibility of
employees. The implementation of policies will be influenced by the type of organisational structure. A
policy will be consistent with the positions and authority roles in the organisation. Policy determination will
certainly be influenced by the organisational structures.

3. Available Resources:
The availability of resources such as human, financial, physical facilities will influence the formulation of
a policy. If a policy implementation requires more resources than are available in the organisation then it will
not be feasible. Rather the resources will fix the limits beyond which a policy cannot go.

4. Managerial Values:
Managers are the persons who are the prime movers of policies. The ethics and value systems of
managers have a direct influence on the formation and implementation of policies. For example, if managers
believe in honesty and truthfulness then these things will be reflected in various policies framed by them.

5. Social Factors:
A number of social factors also have an influence on the policies of the organisation. If society wants only
quality products, does not tolerate exploitation of consumers, gives importance to pollution control, all these
factors will have to be taken into account while framing policies for the organisation.

6. Political Factors:
Political factors have a great influence on the policies of an organisation. The framework of business is
determined by the party in power. The thinking of a political party will certainly be reflected in the
industrial, fiscal and monetary policies of the government. Every enterprise has to incorporate government
policies into their policies. So, political factors have a direct bearing on organisational policies.

Limitation of Policies:
Policies are the guidelines which may help the managers in their day-to-day working. Policies do not provide
ready-made answers to every problem.

They suffer from the following limitations:

1. No Universal Solutions:

Policies do not offer universal solutions to all problems. Policies are framed under particular situations
and remain suitable under those circumstances only. The fast changing economic, social and political
situations influence the working of an enterprise. New policies are required under changed situations. This
problem can be met by constantly evaluating policies. Policies may be modified as per the requirements of
new situations.

2. No Instant Solutions:

Policies do not provide instant solutions to problems. These are only guidelines for the decision-makers. The
solutions are to be found by the executives themselves. Policies cannot replace human judgment under any
circumstances.

3. Dampen Human Initiation:

Too many policies kill the initiative of managers. They become habituated to act according to policies and
do not try to their judgment. Policies also leave little room for individual initiative.
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4. No Substitute for Human Judgment:

Policies do not provide standard solution to various problems. They are only guidelines which help managers
in taking decisions. Managers have to judge the things according to the prevailing environment. Human
judgment cannot be substituted by framing policies meticulously.

BUSINESS POLICY
Business policies are the guidelines formulated by an organization to govern its actions. They define
the limits and the scope within which decisions must be made by the subordinates. It allows the lower level
management to deal with the issues and challenges without consulting top level management every time for
making decisions.
Business policy is a set of principles and rules which directs the decisions of the subordinates.
Policies are framed by the top level management to serve as a road map for operational decision making. It
is helpful in stressing the rules, principles and values of the organization. Policies are designed, by taking
opinions and general views of a number of people in the organization regarding any situation. They are
made from the past experience and basic understanding. In this way, the people who come under the range
of such policies will completely agree upon its implementation. Policies help the management of an
organization to determine what is to be done, in a particular situation. These have to be consistently applied
over a long period of time to avoid discrepancies and overlapping.

Importance of a Business Policy:

Policies are the key for success of the business. Policies offer great advantages to the management if
they are stated with clarity. It raises the confidence of the line managers. They make the decisions within a
given boundary. The managers act without the need for consulting the senior managers every time which
minimizes the need for close supervision. It also builds the confidence of the managers. The importance of
business policies is discussed as follows:

1. Control:
Policy facilitates effective control on the working of the organization. It indirectly controls the managers
at different levels without directly interfering in their routine working.

2. Effective Communication:
Generally, policies are written and well drafted statements. Hence there is not a remote chance of
confusion or miscommunication. By setting policies the management ensures that decisions made will be
consistent and in the best interest of the organization. Clearly laid down policies try to eliminate personal
hunch and biasness.

3. Clarity:
Policies clarify the viewpoint of the management for the purpose of running a particular activity /
activities.

4. Motivation:
Policy enables the line managers to be self-reliant. They take the decision on their own in the confined
border of the policy. This raises their confidence and motivates them. A well drafted policy provides a
pattern within which delegation of authority is possible.

5. Policy Review:
Regular review of policy is must to see to it that the existing policies are relevant in the given situation.
If required, policy may be modified or altered depending on the business environment. Review of policy at
regular intervals provides a method of anticipating future conditions and situations and helps to resolve
how to deal with them.

6. Economical and Efficient:

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Policy enables the management to carry out its operations effectively and efficiently. It enhances the
working of the organization.

7. Coordination of Efforts:
Policies ensure coordination of efforts and activities at different levels in the organization. Activities and
duties are assigned in such a way that all activities in the organization are integrated effectively. Policy
coordinates with individual efforts.

8. High Morale:
A well-crafted policy can raise the overall morale of an enterprise. Policy enables the managers to
understand the intention of the management.

Characteristics of Business Policy:

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

What is Strategy?
Strategy is the means to achieve long-term goals and objectives that best utilize resources and aims
at a sustainable competitive advantage. It is a long-term or potential action plan that includes top
management decisions and a significant amount of organizational resources.
A strategy gives a clear direction to the organization on how to achieve desired goals and objectives
efficiently and effectively. It integrates reasonably organizational scarce resources with an action plan by a
thorough analysis of the internal and external forces of the organization and future potentialities.
The term “Strategy” is derived from the Greek word “Strategos” meaning “General Art”. It
influences the organization’s long-term prosperity, typically for 5 years. It is multifunctional and requires
close consideration of internal and external factors an organization is facing. A strategy may include
geographic expansion, diversification, acquisition, product development, market penetration, retrenchment,
divestiture, liquidation, and joint venture.
An effective strategy is vital for the organization to efficiently use scarce resources, increase
productivity, be different from others, and achieve objectives competitively. So it is said that “Without a
strategy, an organization is like a ship moving around in a circle without radar”.
Strategies Definition:
 “A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantage of a
firm to the challenges of the environment. It is designed to ensure that basic objectives of the
enterprises are achieved through proper execution of the organization.” – Jauch and Glueck
 “Strategy is the direction and scope of an organization over long-term which achieves advantage for
the organization through its configuration of resources within a changing environment and to fulfill
stakeholders’ expectations.” – Johnson and Scholes
 “Strategies are the means by which long-term objectives will be achieved.” – David
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 “A strategy is an integrated and coordinated set of commitments and actions designed to exploit
core competencies and gain a competitive advantage.” – Hitt, Ireland, and Hoskisson
In this sense, strategy is a combination of commitments and activities that work together to leverage
core competencies and generate a competitive advantage. In this sense, the firm’s selected strategy reveals
what it will and will not undertake.
The strategy of a company also shows how it differs from its competitors. In today’s competitive
company world, effective strategic management processes lower the likelihood of business failure.

Characteristics of Strategy
Strategies are the long-term action plans which are formulated and implemented considering
potential consequences and potentialities of external and internal environmental factors in order to achieve
goals in the best possible way.
Some major characteristics/features of strategy are mentioned below:
Future-Oriented
Strategy is future-oriented, it always considers the future businesses of the organization, and less
consideration is given to current affairs. Typically strategies are formulated and implemented to utilize of 5
years goals.
Strategic Means
It is a strategic means that strategically handles the organizational performance – structures, policies,
functions, plans – and goes for proper implementation of plans reducing the likely failures while
implementing. It creates a straightforward roadmap for the organization, stating “where is the organization
now” and “where it will be in the future”.
Goal-Oriented
Strategies are goal-oriented, they are typically built to achieve organizational goals and objectives. Their
main motive is to accomplish desired goals.
General Means Not A Tactic
Strategy is general means, not a tactic as its epistemological concept says. Tactics and strategies both talk
about how to achieve a certain goal. Strategies talk about how to generally achieve goals and tactics talk
about how to specifically achieve goals.
Tactics are more tangible and strategies are abstract. As Chinese general and philosopher Sun Tzu wrote,
“All the men can see the tactics I use to conquer, but what none can see is the strategy out of which great
victory is evolved.”
Resource Allocation
Strategies ensure effective allocation and utilization of organizational resources. The strategy helps to best
allocate time, talent, and budget as such managers get enhanced performance and likelihood of achieving
expected goals.

Levels of Strategy
In organizational settings, mainly strategies exist on three levels viz. corporate, business, and
functional level strategy.
Corporate Level
Corporate-level strategies are formulated considering the overall growth, performance, and scope of the
organization. They are formulated by complying with the vision and mission statement.
They are prepared by top executives considering the overall risk and return to the organization. The
corporate level strategy also includes four main types of strategies that a firm can opt for:
 Stability: It aims to continue the current operations of the organization without any significant
changes in direction.
 Growth: Organizations who aim to expand their business aim this strategy. It is designed to achieve
growth in sales, assets, profits, or some combinations.
 Retrenchment: Aims to reduce the size or diversify of a company for financial feasibility.
 Mixed: Adoption of stability, growth, and retrenchment strategies in different business units and
operations.
Business Level
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Business level strategies help to successfully implement corporate-level strategies and outline how to
compete with current market competition and how to retain customers.
These are all about how an organization successfully competes with competitors and achieves competitive
advantages by exploiting organizational core competencies. It also includes three main types.
 Cost Leadership: This strategy attempts to achieve a competitive advantage by providing
acceptable products at lower than the competitors.
 Differentiation: Involves providing goods and services which are different than those of
competitors at an acceptable cost.
 Focus/Niche: Aims to serve a particular buyer group or niche more effectively than the
competitors.
Functional Level
Functional level strategies are formulated to operate the day-to-day operations of the organization more
effectively. It aims to operate daily activities effectively, enhance effectiveness in different functional
areas, and support business-level strategies and ultimately to the corporate level.
Functional level strategies are also called operational level strategies. It also has a number of types:
 Marketing: It deals with customers and competition. It is basically related to market
position, marketing mix, reputation, and brand.
 Production/Operation: This strategy determines how and where a product or service is to be
manufactured. It also deals with the level of vertical integration in the production process,
deployment of physical resources, relationships with suppliers, and the optimum level of
technology.
 Finance: It includes activities related to the acquisition and management of funds required for
business. It mainly aims at enhancing the financial value of the business.
 Human Resource: It deals with the acquisition, development, and facilities of human resources. It
also addresses the skill, motivation, and diversification of human resources.
 Research and Development: It mainly deals with the acquisition, use, and development of
technology.

Need for Strategy

Globalization and the advancement of information technology have made the current business
environment extremely competitive. Managers must develop a new mindset in such a competitive business
climate, one that values flexibility, speed, creativity, and the challenges that arise from constantly changing
business conditions.
Firms typically actively confront their competitors in a competitive market to improve their competitive
position and performance. In this case, strategy becomes a tool for obtaining a long-term competitive
advantage.
It is a potential plan of actions that includes top management decisions and a considerable amount of
resources. It is prime objective is to achieve a sustainable competitive advantage over competitors. The
following are some of the points to show the need for a strategy for the organizations.
 To understand the competitive environment and compete successfully
 To effectively adapt to the environment
 To adopt a suitable business model
 To acquire and utilize resources optimally
 To set a competitive organizational structure
 To retain the customers by building a relationship with them
 To expand the business
 To fulfill the stakeholder’s expectations
 To ensure the sustainability of the business

PROGRAM AND ITS EFFECTIVENESS

Program has the following definitions “It is a single use comprehensive plan laying down the
principle steps for accomplishing (completing) a specific job or objective in a specific time”.
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Thus, it outlines by whom, when and where new product development programs, management
programs, training, sales programs, etc

EFFECTIVE PROGRAMS

An effective program has the following steps:

it is divided into several steps for achieving objectives

it establishes relationship between several steps to ensure a smooth flow of the sequence of
operations.
It decides responsibility and accountability
It determines the resources needed
It fixes the time limit by assigning a time for each program, etc

Procedure
Definition: Procedure, refers to a comprehensive set of instructions that prescribes a certain way of
performing a process, or part of a process, in relation to time. It states a chronological sequence for
undertaking activities, so as to achieve the objectives.
The procedures are meant for insiders (members of the organization including employees, directors,
managers and workers) to be pursued. They are also popularly known as the term Standard Operating
Procedure (SOPs). It states exactly what course of action is to be followed by an employee in a specific
circumstance.
Characteristics of Procedure
Procedures are operational guidelines, reflecting the way in which policies can be implemented. A
company’s policies and procedures are interconnected to one another, which are to be undertaken within a
general policy framework. The salient features of procedures are discussed as under:

 Acts as a guide to action.

 Defined keeping in view the company’s objectives, policies and resources.
 Related to the time sequence for the work to be performed.
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 Meant for handling repetitive and regular events effectively.

 Relevant for controlling and coordination of activities.
Procedure suggests particular beginning and endpoints which are required to be pursued in an exact manner
to efficiently and satisfactorily carry out a task.

Importance of Procedure
Upcoming points will discuss the importance of procedures:
 It defines the manner in which work is to be carried out and eliminate all the irrelevant or repetitive steps.
 It ensures a high level of uniformity in tasks, and consistency in the decisions which helps in avoiding
chaos.
 To undertake any task in an effective manner, the procedure suggests the ideal ways and methods.
 It facilitates in eliminating or reducing errors or accidents.
 It assists in the successful completion of the work assigned in a timely manner.
 Procedures specify the base for evaluating the performance of the workers or employees. In this way, it
ensures executive control over the performance of employees.
 It saves time, efforts and money because it states the standard ways for doing things.
The procedure is a component of planning which handles the “how” and “when” aspect, i.e. it specifies the
way in which work is to be performed and the right time for performing it.

Limitations of Procedure
As every coin has two sides, the procedure also has some limitations. As a standard way is prescribed for
performing the task, it constrains the scope for innovation or improvement in performing the work.
Example
A firm develops procedures for various activities like purchasing, issuing raw materials from stores,
recruiting employees, conducting meetings, handling grievances, granting loans to employees resolving
customer’s issues, dealing with clients, granting leaves to employees, etc.

Definition of Rules
Rules – a set of instructions, regulations and guidelines for standard behaviour. It determines the acts
which are to be performed or not to be performed, within the organization. It is indicated in the form of
orders, warnings, prohibitions and norms, so as to maintain discipline or to standardize or restrain, the
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behaviour of individual and group.

 It prescribes the minimum acceptable behaviour with the help of norms and instructions, on
expected behaviour.
 These are applicable to all, i.e. rules are for everyone, irrespective of the level of management to
which an individual belongs. For Example: In an education institute, there is a rule that ‘Use of
mobile is prohibited during working hours’. Now, everyone has to follow this rule, no matter if
someone belongs to top-level management or low-level management.
 They are precise and clear so that employees can understand them easily, without any confusion
and chaos.
 It lessens the need for close supervision, as rules are known to all, and managers can easily predict
what subordinates will do in a particular situation.
Rules demand obedience and so any person who does not adhere to the company’s rules are subjected to
punishment or penalty. Hence, strict action is taken by the company, against the people who violate or
disobey the rules. Further, there is no room for discretion in case of rules, so they need to be followed
stringently. Exceptions to the rule might be there, but only in certain circumstances, and they are also
limited.

Key Differences Between Rules and Policies

The points stated below give a clear insight into the differences between rules and policies:
1. Rules are basically a list containing the do’s and dont’s, which aims at maintaining uniformity, in
the treatment as well as in the behaviour of the employees. On the other hand, Policies alludes to
the directives that lay out a constant framework for executive actions on recurring managerial
problems.
2. Rules can be in the form of orders, instructions or norms that needs compliance. As against, policies
determine the framework, within which the executive decisions can be taken.
3. Rules determine what the employees must and must not do, whereas policies determine what needs
to be done in various circumstances.
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4. Policies are derived from the objectives of the business, i.e. policies are created keeping in mind the
objectives of the organization. As against, rules are based on policies and procedures.
5. When it comes to rigidity, rules are more rigid in comparison to policies, in the sense there is no
scope for thinking and decision making in case of a rule, but, there is a certain degree of scope for
thinking and decision making, in case of policies.
6. While rules are specific statements, i.e. it specifies the actions or non-actions of the employees. On
the contrary, policies are general statements which guide the decision making of the managers in
general, by stating the problems encountered on a daily basis and their readymade solutions.
7. Rules are created to regulate the behaviour and ensure compliance, to maintain discipline in the
organization. In contrast, policies are formulated by the management to guide the decision making,
to ensure uniformity and consistency.

MBO/MBE

MBO stands for "Management by Objectives" and MBE stands for "Management by Exception."
MBO is a management approach in which managers and employees work together to set, communicate,
and achieve specific, measurable goals for the organization.
MBE is a management approach in which managers focus on identifying and addressing exceptions or
deviations from established standards or goals. This approach is used to identify and resolve problems or
inefficiencies in the organization.
In summary, MBO is a proactive management approach that focuses on setting and achieving goals,
while MBE is a reactive management approach that focuses on identifying and addressing problems or
exceptions.

Management by Objectives (MBO) Management by Exception (MBE)

Definition A management approach in which A management approach in which
managers and employees work together managers monitor performance and
to set and achieve specific goals. take action only when deviations from
established standards occur.
Goals Specific and measurable goals are set in Standards are set in advance and
advance and agreed upon by all parties. managers monitor performance to
ensure they are met.
Emphasis Emphasis is placed on setting and Emphasis is placed on monitoring and
achieving goals. controlling performance.
Role of Managers Managers actively participate in setting Managers primarily monitor
and achieving goals. performance and take action when
necessary.
Role of Employees Employees are involved in setting goals Employees are responsible for meeting
and take responsibility for achieving established standards.
them.
Decision Making Decisions are made based on goal Decisions are made based on deviation
attainment. from established standards.
Feedback and Regular feedback and communication is Feedback and communication
Communication necessary to ensure progress towards primarily occur when deviations from
goals. standards are identified.
Implementation Implementation and evaluation of Implementation and evaluation
and Evaluation progress towards goals is ongoing. primarily occur when deviations from
standards are identified.

Key differences between MBO and MBE

1. Focus: MBO focuses on setting and achieving specific, measurable goals, while MBE focuses on
identifying and addressing exceptions or deviations from established standards or goals.
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2. Proactivity vs reactivity: MBO is a proactive management approach, while MBE is a reactive

management approach.
3. Participation: In MBO, managers and employees work together to set and achieve goals, while in MBE,
managers focus on identifying and addressing exceptions or deviations.
4. Emphasis: MBO emphasizes goal setting and achievement, while MBE emphasizes problem
identification and resolution.
5. Time frame: MBO focuses on long-term goals and objectives, while MBE focuses on identifying and
addressing short-term exceptions or deviations.
6. Feedback: MBO includes regular feedback and evaluation to measure progress towards goals, while MBE
focuses on identifying and addressing exceptions or deviations as they occur.
7. Management level: MBO is typically implemented at the organizational level, while MBE is typically
implemented at the operational level.
8. Outcome: The outcome of MBO is achieving specific, measurable goals, while the outcome of MBE is
identifying and addressing problems or inefficiencies in the organization.

Parameters of Policy:
There are certain parameters for business policy, they are:
1. Policy should be identifiable and clear, either in words or in practice.
2. Objectives of the policy should be fully identified and well defined.
3. Policy should not be conflicting with other functional and divisional policies of the company.
4. The policy should be capable enough to fully exploit the opportunities.
5. Policy should be characterized by fairness and honesty with organizational philosophy, objectives, goals
and strategy.
6. Policy should be appropriate to the desired level of contribution to society.
7. Policy should be acceptable to all concerned; i.e., it should be appropriate to the personal values and
aspirations of the key managers.
8. Policy should constitute a clear stimulus to organizational effort and commitment.
9. Policy should always be realistic

SWOT ANALYSIS:

SWOT Analysis is a strategic management tool that assists an enterprise in discerning their internal
Strengths, and Weaknesses, and external Opportunities, and Threats, to determine its competitive
position in the market. The SWOT Analysis helps in ascertaining the factors that influences the
efficiency and effectiveness of any product, project, or business entity. These are explained as under:

Strengths: The strengths of a company are the core competencies, in which the business has an edge
over its competitors. It covers aspects such as:
 Strong financial condition
 A large customer base.
 Strong brand name or a unique product
 Latest technology or patents
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 Influential advertising and promotion.

 Cost Advantage
 Quality in product and customer service.

Weaknesses: Weaknesses can be described as the areas of limitations of the business that hinders the
growth of the company and even leads to a strategic disadvantage. These are the areas which need
improvement to perform competitively. It encompasses:
 Obsolete facilities and outdated technology.
 The unit cost of a product is higher than the competitors.
 No or less internal control.
 Less quality in products and services offered.
 Weak brand image.
 Financial condition is not very sound.
 Underutilization of plant capacity.
 Lack of major skills or competencies, and intellectual capital.

Opportunities: Opportunities can be understood as the condition, which is favorable or beneficial to

the organization in the business environment that the business could exploit to gain an advantage. These
are:
 Looking for areas of development, by utilizing skills and technology to enter new markets
 Adding new products to the existing product line to increase customer base.
 Forward and backward integration.
 Acquiring rival’s businesses.
 Joint ventures, mergers and alliances to increase market coverage.

Threats: Threat implies an adverse condition which can lead the business enterprise to losses, and
can also harm the overall position and reputation of the enterprise. It entails:
 A downtrend in market growth.
 A new entrant to the market.
 Substitute products that can decrease sales.
 Increasing the bargaining power of customers and suppliers.
 New regulatory requirements
 Changes in a demographic environment that will decrease demand for firm’sproduct.

Importance of SWOT Analysis:

 Logical framework of analysis: SWOT Analysis equips the management with an insightful
framework for eliminating issues in a systematic manner that can influence the condition of business,
formulation of various strategies and their selection.
 Presents a comparative report: The analysis facilitates in presenting systematic information
about the internal and external environment. This helps in making a comparison of external
opportunities and threats with internal strengths and weaknesses, as well as reconciling the internal and
external business environment, to help the managers in choosing the best strategy, by considering
various patterns.
 Strategy Identification: Every organization has its strengths weakness, opportunities and threats.
So, the SWOT Analysis acts as a guide to the strategist to reckon the exact position, i.e. where the
business stands, so as to identify the primary objective of the strategy under consideration.

SWOT Analysis helps the company’s management in designing a business model specific to the
firm. The model perfectly suits or aligns the company’s resources or competencies, as per the needs of the
business environment, wherein the organization operates and helps in gaining a competitive advantage
over the rivals. This will increase the profitability, market share and the chances to survive in the dynamic
competitive business environment.