CONCEPT OF BUSINESS POLICY
*Shanmukha Rao. Padala **Dr. N. V.S. Suryanarayana
In day-to-day processes every organisation involves in a complicated pattern of decisions from board level about the objectives of the organization. Some of these decisions have long term effect while others have only short-term effect. Such long-term decisions are integrative in nature, involving more than one functional area of the organization. Business policy will provide an opportunity to put together what they have learnt in the separate business fields and utilise this knowledge in the analysis of complex business problems.
Business policy focuses on top management functions. Top management is responsible for overall management of the organisation. Overall management means determination of organisational objectives and goals, overall planning and overall control in the organisation.
It integrates the entire organisation, maintains balance among the interest groups in the organisation. Top management alone is responsible for relating the organisation to a changing environment.
Business policy focuses on general management rather than any specific functional area. General management is concerned with the total business system and an understanding of system. General management is different from functional management due to the following reasons.
i. Frame of reference- Elemental frame of reference is more relevant to the functional specialist while a System frame of reference is for the general management.
Elemental frame of reference allows the use of concepts, theories, procedures, methods and techniques to the solution of current problems. The problem is divided into component elements in order to make it manageable. System frame of reference is required in dealing with the total unified, interacting, independent systematic character of an organisation.
ii. Decision criteria- The difference between a generalist and a functional specialist may lie in terms of emphasis, which they put on the work. A specialist generally is an expert on a particular subject because he has devoted considerable time in mastering the subject. Each specialist establishes standards for his rationality drawn from his discipline and decides the matter in those terms. A generalist considers all the relevant specialist criteria for decision making and then decides what is in the best interest of the organisation.
- Decision horizon- A functional specialist may think in terms of what is in the best interest of his department. Specialists reduce the range of relevant variables as much as possible, to make the problem more manageable and the outcome more controllable. A specialist tries to narrow down his alternatives so as to arrive at optimal decision. A generalist emphasises on equilibrium in the organisation through his decision, thereby his decision being feasible and adequate. A generalist considers maximum number of alternatives available in the hope of finding a combination, which yields the greatest returns from the available resources. The generalist management point of view is a matter of both judgement and attitude. Judgement is required in identifying and assessing which variables are crucial and in predicting
the future outcomes of action alternatives.
OBJECTIVE OF BUSINESS POLICY
Knowledge is the basic objective of any discipline. The basic objective is to gain knowledge and understand the central significance of policy and strategy to top management and its organization.
The study of policy enables students to understand how various steps of strategic management process can be carried on. It emphasizes understanding of interrelationships among subsystems in the organization. The policy study emphasizes the limitations of specialized knowledge in solving complex business problems.
Knowledge of policy inculcates these attitudes in the students. A manager takes decisions on the basis of totality of factors involved in them, because he takes the position of a generalist. A generalist develops the attitudes of making decisions under the condition of partial ignorance, which is the reality of business system in any country. Business policy course tries to develop professional orientation among managers. The course puts emphasis on innovation in management practices through creativity.
The major contribution of the Business Policy course lies in developing appropriate skills necessary for viewing the total organisation.
Katz has identified three kinds of skills necessary for managers.
- Technical skills – are concerned with what is done. Proficiency in activities involving methods, processes and procedures. Such skills are developed by the actual practice on the job.
- Human skills– is concerned with how it is done.
- Conceptual skills– general management skills are concerned with why it is done. Technical skills deal with things, human skills deal with people, and conceptual skills deal with ideas.
Level of Management Conceptual Human Functional
Top High Moderate Low
Middle Moderate High Moderate
Lower Low Moderate High
At the lower level, people are more concerned with operational activities. They are concerned with immediate, tangible and action decisions. They need technical skills more than other skills.
Middle managers interpret the conceptual plans made at the top level into action terms that are sensible and helpful to those at lower level of the organisation. They also monitor the efforts taken by the front line. Such functions require high level of human skills but at the same time moderate degree of conceptual and technical skills also.
Top level managers are responsible for making long range plans, conceptual, organisation – wide decisions. Such managers require more conceptual skills as compared to other skills.
Osmond has suggested that top level managers require eight specific skills. These are skills relating to balancing, integrating, setting priorities, setting and developing standards, conceptualising, leading, matching oneself with one’s job and delegating.
CONCEPT OF POLICY:
Policy and strategy are used almost interchangeably. Business policy has been defined as management’s expressed or implied intent to govern action in the achievement of company’s aims.
A policy is the statement or general understanding, which provides guidance in decision making to members of an organisation in respect of any course of action.
The following are the features of policy;
- Policies provide guidelines to the members in the organisation for deciding a course of action. Policies permit prediction of roles with certainty.
- Policies are generally expressed in a qualitative, conditional and general way.
- Policy formulation is a function of all managers in an organisation because some form of guidelines for future course of action is required at every level.
- A policy is formulated in the context of organisational objectives.
CONCEPT OF STRATEGY:
Business strategy is the pattern of objectives, purposes or goals and major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.
- A strategy is defined as ‘a unified, comprehensive, and integrated plan that relates to the strategic advantages of the firm to the environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization.
- Alfred D. Chandler defines strategy as, “the determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.”
- Stanford Research Institute has stated that “Strategy is a way in which the firm reacting to its environment deploys its principal resources and marshals its main efforts in pursuit of its purpose”.
- Strategy is the determination of basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
- Strategy is defined by Arthur Sharplin as, “a plan or course of action which is of vital pervasive, or continuing importance to the organization as a whole”.
- James Brain Quinn defines the term strategy as, “the pattern of plan that integrates an organisation”
Strategy is the determination of organisational objectives in the light of environmental variables and determination of course of action and commitment of organisatonal resources to achieve these objectives.
FEATURES OF STRATEGY:
- Strategy is a central understanding of the strategic management process.
- Strategy is the determination of basic long-term goals and objectives of an organization.
- Determining the course of action to attain the predetermine goals and objectives.
- Allocating the necessary resources for implementing the course of action.
- Strategy is a relative combination of actions.
- Strategy may even involve contradictory action.
- Strategy is forward looking.
- Developing the company from its present position to the desired future position.
- Set of decision making rules making a common threads.
- The common thread pull the policies, plans, goals, objectives of the different functional areas of business such as finance, marketing, production or operation and human resource together and interweaves them as a unified comprehensive and integrative plan, action and evaluation.
- Set a clear direction.
- Enterprise knows its strengths and weakness compared with those of its competitors.
- Enterprise devotes its hard-won resources to projects that employ its set of core competencies, the primary skills within the organization.
- Identify factors in the political and social environment that requires careful monitoring.
- Recognize which competitor’s actions need critical attention
- The competitive firm should have a rational clear-headed notion purged of wishful thinking of: (a) Its mission, (b) Its external competitive environment (for analyzing opportunities and threats) and (c) Its internal capabilities (including strengths and weaknesses). Now, we turn our discussion to the dimensions of the strategy, criteria for effective strategy, forms of and kinds of strategies.
POLICIES AND STRATEGIES:
Strategy is a common term for what used to be called policy. Some writers refer as the general strategy or grand strategy as policy and competitive strategy as strategy. Policy is a guideline to the thinking and action of those who make decisions, while the latter concern with the direction in which human and physical resources are deployed and applied to maximise the chances of achieving organisational objectives.
Policy is contingent decision whereas strategy is a rule for making decisions. A contingent event is recognised because it is repetitive but the time of its specific occurrence cannot be specified. Policy provides guidelines for decisions; it can be delegated downward since it may require last minute executive decisions.
1.7 ELEMENTS OF A STRATEGY:
Any coherent strategy should have four important elements.
Goals: A strategy invariably indicates the long-term goals toward which all efforts are directed, foe example, long-term goals might be to dominate the market, to be the technology leader or to be the premium quality firm. Such enduring goals help employees give their best in a unified manner and enable the firm to specify its competitive position very clearly to its rivals. A recent advertisement from Maruti Suzuki for example claims: we don’t just sell more cars than No.2. We sell more cars than the entire competition put together. Maruti’s commitment to being number one (sale, distribution network, lowest cost producer, highest resale value, one stop solution provider etc.) or two in the markets it serves, sends clear signals to its rivals in more than one way
Scope: a strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will, at the same time, throw light on the activities the firm will not undertake.
Competitive Advantage: A strategy also contain a clear statement of what competitive advantages the firm will pursue and sustain. Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals. Firms build competitive advantage when they take steps that help them gain an edge over their rivals in attracting buyers. These steps vary, for example, making the highest quality product, offering the best customer service, producing at the lowest cost or focusing resources on a specific segment or on niche of the industry.
Logic: This is the most important element of strategy. For example, a firm’s strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market. The scope is to produce low-cost detergent power for the Indian mass market. The competitive advantage is the firm’s low cost. Yet this example does not explain why this strategy will work. Why the firm will get ahead of others by limiting its scope and by being the low cost producer in the detergent industry. The ‘why’ is the logic of the strategy. To see how logic is the core of a strategy, consider the following expanded version of a strategy; our strategy is to dominate the Indian market for inexpensive detergent power by being the low cost producer selling through mss-market channels. Our low price will generate high volumes. This, in turn, will make us a high volume, low-cost producer. The economies of scale would help us improve our bottom-line even with a low price.
NEED FOR STATEGY:
It is beyond doubt to state every organization necessarily formulate strategies. To state specifically, strategy is necessary in view of the following reason:
To have rules to guide the search for new opportunities both inside and outside the firm.
To take high quality project decisions.
To develop measures to judge whether a particular opportunity is a rare one or whether much better ones are likely to develop in the future.
To have an assurance that the firm’s overall resource allocation pattern is efficient.
To have and develop internal ability to anticipate change.
To save time, money and executive talent.
To identify, develop and exploit potential opportunities.
To utilize the delay the commitment until an opportunity is on hand.
STRATEGY AND TACTICS:
Organizational decisions range across a spectrum, having a broad master strategy at one end and minute tactics at other. Strategy determines what major plans are to be undertaken and allocates resources to them, while tactics, in contrast, is means by which previously determined plans are executed.
Points of distinction
1. Level of conduct- Strategy is developed at the highest level of management, whereas tactics is employed at lower levels of management.
2. Continuity-The formulation of strategy is both continuous and irregular. Tactics is determined on a periodic basis by various organisations.
3. Time horizon– Strategy has a long term perspective. In occasional cases, it may have short-term duration. Tactics is shortrun and definite.
4. Uncertainty– Element of uncertainty is higher in case of strategy formulation and its implementation. Tactical decisions are more certain as these are taken within the framework set by the strategy.
5. Information needs – Total possible range of alternatives from which a manager can choose his strategic action is greater than tactics. Since then an attempt is made to relate the organization to its environment. Tactical information is generated within the organization.
6.Type of personnel– Separate group of managerial personnel is involved in strategy and tactics formulation and their implementation. Tactical decisions can be taken by personnel at lower levels because they involve minute implementation.
7. Subjective values– The formulation of strategy is affected considerably by the personal values of the persons involved. Tactics is normally free from such values because this is to be taken within the context of strategic decisions.
8. Importance – Strategies are most important factors of organization because they decide the future course of action for the organization. Tactics are of less importance because they are concerned with specific part of the organization.
Business Policy focuses on top management functions. Top management integrates the entire organisation, maintains balance among the interest groups in the organisation. Business Policy is concerned about General Management rather than any specific area. The objectives of Business Policy course are to provide Knowledge, Attitudes and Skills.
Though the terms Policy and Strategy are used interchangeably, but a Policy is a statement or general understanding which provides guidance in decision making to members of an organisation whereas Strategy is a way in which the firm reacts to its environment, deploys its principal resources and marshals its main efforts in pursuit of its purpose. Strategy determines what major plans are to be undertaken and allocates resources to them, while Tactics, in contrast is means by which previously determined plans are executed.
Source by P.S.Rao., NVS.Suryanarayana