BUSINESS POLICY

UNIT-5 NOTES

FUNCTIONAL POLICY-

Functional policies play important role in strategy implementation. A functional policy is

formulated basically to control and reinforce implementation of functional strategies and
also the corporate strategy. Control and reinforcement of strategy implementation are
facilitated by functional policies in the following ways:

 Through the functional policies, top management can ensure that strategy is
implemented by all parts of the organisation as policies cover almost entire activities
of the organisation.
 Policies specify the manner in which things can be done. Thus, the top management of
the organisation can rest assured that all employees of the organisation will direct
their efforts in a way relevant for strategy implementation.
 Policies provide guidelines for managerial decisions. This aspect of the policies serves
the strategy implementation in two ways. First, there will be uniformity throughout
the organisation in managerial action. Second, there will be considerable time savings
in decision making as managers are well aware what kind of actions are required in a
given situation.
 Functional policies provide basis for control in different areas of an organization.
 Policies provide coordination across different functions. Coordination among different
functions is very important for strategy implementation.

All functions of an organisation are interdependent and interrelated. Therefore, what is

happening in one function has its relevance for other- functions. All functions can contribute
positively when they are performed in a coordinated way.

The amount of policy making in the formal sense will vary with the size and complexity of
the organisation. If the organisation is small one with simple business, only a few policies
will be sufficient. Moreover, the policies are generally understood and verbal. However, in
large and complex organizations, large number of policies is needed, In whatever forms, the
policies are developed, they must be judged on the following criteria:

 Do they exist in the areas critical to the success of the organisation?

 Do they reflect present or desired organisational practices and behavior?
 Are they clear, definite, and explicit leaving no scope for misinterpretation?
 Are they consistent with one another and do they reflect the timing needed to
accomplish the goals ?
 Are they practical in given existing or expected situations?
BUSINESS POLICY RELATION WITH OTHER SUBJECTS-

Business policies can cover a wide range of organizational activities, including different
subjects:

1. Human Resources: Policies around hiring, employee behavior, benefits, compensation,

promotions, and terminations.
2. Finance: Policies on budgeting, accounting, auditing, financial reporting, investment,
and expenditure.
3. Operations: Guidelines on manufacturing, quality control, inventory management,
supply chain management, and customer service.
4. Marketing: Policies on advertising, pricing, product development, and market
research.
5. Information Technology: Rules on data management, privacy, security, technology
use, and software development.
6. Corporate Governance: Policies around the board of director operations, shareholder
rights, conflict of interest, and corporate social responsibility.
7. Compliance: Policies ensuring to laws and regulations relevant to the organization’s
industry and operation, including environmental, safety, and labor regulations.

TYPES OF BUSINESS POLICIES-

Business policies can be classified in various ways based on their scope, level of operation,
and who they apply to. Here are some common types of business policies:

1. Organizational or Corporate Policies: These are general policies applicable across the
organization. They are formulated by the top-level management and define the
company’s fundamental beliefs, values, or philosophy. Examples include the company’s
code of ethics, equal opportunity policy, or sustainability policy.
2. Functional or Departmental Policies: These are specific to a certain department or
functional area within the organization, such as human resources, finance, marketing,
or operations. For instance, the human resources department might have policies on
recruitment, vacation time, or performance appraisals.
3. Procedural Policies: These outline the steps or procedures that should be followed to
carry out certain activities or tasks. For example, a company might have a procedural
policy on handling customer complaints or processing returns.
4. Operational Policies: These are day-to-day policies that guide the organization’s
operations. They might include policies on working hours, dress code, or use of
company equipment.
5. Contingency Policies: These are policies that are designed for specific situations or
emergencies that may arise. For example, a company might have a contingency policy
for natural disaster.
 6. Strategic Policies: These policies are linked with the organization’s strategic goals and
provide guidelines for decision-making that align with these goals. They can include
policies on expansion, diversification, or innovation.
7. Compliance Policies: These are created to ensure the company complies with applicable
laws and regulations. They might include policies on data privacy, workplace safety, or
anti-discrimination.
8. Human Resources Policies: These policies govern the relationship between the
organization and its employees, including recruitment, compensation, benefits,
performance management, and termination policies.

HOW TO DESIGN A BUSINESS POLICY?

Designing a business policy involves a series of steps:

1. Identify the Need for a Policy: This could be triggered by a new strategic direction, a
regulatory requirement, feedback from employees, an issue that’s been identified, or
simply an area that hasn’t been addressed before.
2. Define the Policy’s Purpose and Scope: Clearly state what you want to achieve with the
policy and what it will cover. This gives you a clear direction and makes it easier to stay
focused.
3. Research and Consult: Look at best practices in your industry, regulatory requirements,
and any existing internal data or practices. Consult with key team members such as
expert employees, managers, legal experts, and, if necessary, external experts.
4. Draft the Policy: Use clear and concise language. Break the policy down into sections, if
necessary, for easier reading. Include a purpose statement, (i.e., the rules or
guidelines), procedures if applicable (i.e., steps to follow), and definitions of any terms
that might be unfamiliar.
5. Review and Revise: Have the policy reviewed by key experts, including management,
employees who will be affected by the policy, and legal counsel to ensure the policy is
legally sound. Make revisions as needed.
6. Approve the Policy: Depending on the organization’s structure, this could involve the
board of directors, the CEO, or another high-level executive.
7. Communicate the Policy: Ensure all relevant parties know the new policy. This might
involve email communications, meetings, or training sessions. Be clear about the policy,
its importance, and what’s expected of employees.
8. Implement the Policy: Put the policy into action. This could involve changes in
procedures, technology, or roles and responsibilities. Provide support and resources to
help employees understand and comply with the policy.
9. Monitor and Review: Regularly review the policy to see if it’s effective or if there are
any issues. Adjust as necessary.
 10.Document and Update: Ensure the policy is documented and stored in an easily
accessible place for all employees. Update the policy as needed to keep it relevant and
effective.

Remember, creating effective business policies involves an ongoing review and adjustment
process. It’s not enough to set a policy and forget about it; regular reviews and updates are
necessary to ensure it remains effective and relevant.