Unit I

Business policy
Definition:
The guiding procedure, philosophy or course of action for an enterprise or company
organized for commercial purposes.
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
An effective business policy must have following features-
1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation
will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. 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.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.
Benefits of Policies
While creating a full list of policies and procedures can be difficult, the effort is worth it. You
can even ask for assistance from companies that outsource human resources. They will
provide clear guidelines tailored to your company requirements. Here are some reasons why
it’s a good idea to have proper policies in place:
 Clear guidelines will help employees understand the limitations of their job. There
won’t be any need for “trial and error”.
  These instructions make sure everyone is on the same page and there’s no room for
misunderstanding.
 Good guidelines also show employees that you care, which helps build loyalty and
has a positive impact on company culture.
 They provide legal protection. That can be helpful during serious conflicts.
Importance of Business Policy

A written business policy communicates your company's expectations about appropriate

employee work performance. Policy illustrates the acceptable performance boundaries while
simultaneously addressing the employees' needs. Some employers prefer a written policy that
covers every conceivable situation; others prefer no written policy, whereby management
decides each case as the situation merits. Find the ideal balance when creating a business
policy for your business.
 Balance
The ideal business policy encourages individual productivity without making the
employee feel as though you micromanage him. According to Entrepreneur magazine,
neither an extremely detailed nor nonexistent business policies create a highly productive
work environment. Put your business expectations in writing, so employees know how to
meet your requirements. Address employee goals, and tell him how you expect him to
achieve the goals. Once communicated, faithfully enforce, manage and update your
business policies.
 Job Descriptions
Include in your business policy a description of each position in the organization.
Employees must understand their role and how they will interact with others within the
organization. Each employee should understand how their work impacts others in the
company. Make the reporting structures clear both inside the department, between
departments and companywide. Once employees understand their responsibilities, hold
them responsible for their work performance. The AME Info website describes business
policies as "the strategic link between the company's vision and its day-to-day
operations." A well-written business policy allows for management guidance in business
operations without constant intervention by management.

 Liability
All employees, including managers, must understand the acceptable behavior boundaries
at work. Entrepreneur magazine states that when employees misbehave on the job, the
employer may be held liable for how that situation affects clients, individuals or other
employees. A written business policy with clear behavioral expectations helps establish
that you do not approval of and are not contributing to the employee's bad behavior. The
lack of a written business policy can lead to litigation.
 Consequences for Violations
 Establish rules that address any violations of your business policy. Stating the
consequences for violating business policy puts the employee on notice and also increases
the employer's options for effectively dealing with behaviors contrary to policy. Decide
what behaviors mandate an immediate dismissal and what behaviors will trigger a
disciplinary approach, and clearly outline the steps involved in your disciplinary
procedure. From policy, the employee understands the disciplinary process. When
possible, improve the employee's future performance and the company's employee
retention rate by helping the employee strengthen a flawed performance, rather than
losing him as a valued member of your team.
Scope of Business Policy
1.Shaping high-level, long-range corporate objectives and strategic that will be matched, to
both company capacities and to external realities in a world marked by rapid technological,
economic, social and political change.
2. Casting up an effective well-matched set of general policies for the pursuit of that strategy.
3. Guiding the organization in accordance with that strategy.
Historical Evolution of Strategic Management & Business Policy

Below is the detailed information about the Evolution of Strategic Management. This can be
explained with the help of the following key points.

1911: Harvard Business School Introduced Course in Management

1959: Introduction of Business Policy in Academics
1969: The American Assembly of Collegiate Schools of Business, a regulatory body for
business schools, made the course of Business Policy a mandatory for the purpose of
recognition
1980-2000: Business policy has become an integral part of Management Curriculum
The term Business Policy has been used traditionally until the end of the 20th century.

After that, the new titles Strategic Management, Corporate Strategy and Policy have been
used.

Evolution based on Managerial Practices

 Use of planning techniques by Managers can be observed as an important part of the
development of the term Business Policy.

 Along with day to day planning and practices, managers began planning for the future,
including budgets and other resources.

You can also use the following simple chart to understand the evolution of the term
Strategic Management.

 First Short term planning (day to day) Replaced by Long-range Planning

 Then Long-range planning replace by Strategic Planning
 Then Strategic Planning replaced by Strategic Management
The term Strategic Management is nowadays used to describe the process of Strategic
Decision Making.

Four Paradigm Shifts

These four paradigm Shifts are given by Hofer and others.

Phase I /Paradigm I: 1930 to 1960

Key Points: – Paradigm of Ad hoc policymaking

Phase II / Paradigm II
 Environmental changes from 1930 to 1940 in the US — planned policy formulation
replaced ad hoc policymaking

 Based on this second paradigm, the emphasis shifted to the integration of functional areas
in a rapidly changing environment.

Phase III / Paradigm III – 1960

 Planned policy paradigm become irrelevant due to increased complexity and accelerating
changes in the environment.

 Demand for a critical look at the basic concept of business and its relationship with the
environment.

Phase IV / Paradigm IV – 1980 onward

Focus on two fields of enquiry:

1. The strategic processes of business firms

2. The responsibilities of general management
This is all about history and Evolution of Strategic Management and Business Policy.

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-
1. 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.
2. Policy formulation is responsibility of top level management. While strategy
formulation is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running
of an organization. While strategy deals with strategic decisions.
 4. Policy is concerned with both thought and actions. While strategy is concerned mostly
with action.
5. 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.
FORECASTING
Forecasting is the process of making statements about events whose actual outcomes
(typically) have not yet been observed. A commonplace example might be estimation for
some variable of interest at some specified future date. Prediction is a similar, but more
general term. Both might refer to formal statistical methods employing time series, cross-
sectional or longitudinal data, or alternatively to less formal judgmental methods. In any case,
the data must be up to date in order for the forecast to be as accurate as possible. Usage can
differ between areas of application: for example in hydrology, the terms "forecast" and
"forecasting" are sometimes reserved for estimates of values at certain specific future times,
while the term "prediction" is used for more general estimates, such as the number of times
floods will occur over a long period. Risk and uncertainty are central to forecasting and
prediction; it is generally considered good practice to indicate the degree of uncertainty
attaching to forecasts. The process of climate change and increasing energy prices has led to
the usage of gain Forecasting of buildings. The method uses Forecasting to reduce the energy
needed to heat the building, thus reducing the emission of greenhouse gases. Forecasting is
used in the practice of Customer Demand Planning in everyday business forecasting for
manufacturing companies. Forecasting has also been used to predict the development of
conflict situations. Experts in forecasting perform research that use empirical results to gauge
the effectiveness of certain forecasting models. Research has shown that there is little
difference between the accuracy of forecasts performed by experts knowledgeable of the
conflict situation of interest and that performed by individuals who knew much less.
Similarly, experts in some studies argue that role thinking does not contribute to the accuracy
of the forecast. The discipline of demand planning, also sometimes referred to as supply
chain forecasting, embraces both statistical forecasting and a consensus process. An
important, albeit often ignored aspect of forecasting, is the relationship it holds with planning.
Forecasting can be described as predicting what the future will look like, whereas planning
predicts what the future should look like. There is no single right forecasting method to use.
Selection of a method should be based on your objectives and your conditions (data etc.). A
good place to find a method is by visiting a selection tree. An example of a selection tree can
be found here. Although quantitative analysis can be very precise, it is not always
appropriate. Some experts in the field of forecasting have advised against the use of mean
square error to compare forecasting methods.
Short-Term, Medium-Term & Long-Term Planning in Business
Business owners develop plans to reach their overall goals, and they usually find it useful to
separate planning into phases. This allows you to track immediate improvements while
evaluating progress toward eventual goals and targets. The different time frames of the
planning process place the focus on time-sensitive aspects of the company's structure and
environment. You can differentiate planning based on the time frames of the inputs and
expected outcomes.
Short-Term Planning
Short-term planning looks at the characteristics of the company in the present and develops
strategies for improving them. Examples are the skills of the employees and their attitudes.
The condition of production equipment or product quality problems are also short-term
concerns.
To address these issues, you put in place short-term solutions to address problems.
Employee training courses, equipment servicing and quality fixes are short-term solutions .
These solutions set the stage for addressing problems more comprehensively in the longer
term.
Medium-Term Planning
Medium-term planning applies more permanent solutions to short-term problems. If
training courses for employees solved problems in the short term, companies schedule
training programs for the medium term. If there are quality issues, the medium-term
response is to revise and strengthen the company's quality control program.
Where a short-term response to equipment failure is to repair the machine, a medium-term
solution is to arrange for a service contract. Medium-term planning implements policies and
procedures to ensure that short-term problems don't recur.
Long-Term Planning
In the long term, companies want to solve problems permanently and to reach their overall
targets. Long-term planning reacts to the competitive situation of the company in its social,
economic and political environment and develops strategies for adapting and influencing its
position to achieve long-term goals. It examines major capital expenditures such as
purchasing equipment and facilities, and implements policies and procedures that shape the
company's profile to match top management's ideas.
When short-term and medium-term planning is successful, long-term planning builds on
those achievements to preserve accomplishments and ensure continued progress.
Long-term planning displays how your business can be successful over a continued period.
The goals set in long-term planning are less likely to be changeable due to the consensus a
management team needs when creating them initially.
Long-term goals can factor in these concepts to reach success:
 Sales
 Brand awareness of your product
 Public reputation
 Number of staff members
 Social and digital media presence
 SEO traction
 Attendance at industry events
Difference Between Strategic Planning and Strategic Management

In the hyper-competitive environment, it is difficult for business houses to survive, grow and
expand in the long-run if they do not have strategic planning. A strategic planning is an
activity, which determines the objectives and considers both internal and external
environment to design, implement, analyze and adjust the strategies, to gain competitive
advantage.

Strategic Planning is not exactly same as strategic management, which implies a stream of
decisions and actions taken by the top level managers to achieve organizational goals. It is
nothing but the identification and application of strategies, to improve their performance level
and attain dominance in the industry.

Many think that the two terms denote one and the same thing, but there is a difference
between strategic planning and strategic management which explains the article hereunder,
take a read.

Comparison Chart

BASIS FOR
STRATEGIC PLANNING STRATEGIC MANAGEMENT
COMPARISON

Meaning Strategic Planning is a future Strategic Management implies a bundle

oriented activity which tends to of decisions or moves taken in relation
determine the organizational to the formulation and execution of
strategy and used to set strategies to achieve organizational
priorities. goals.
 BASIS FOR
STRATEGIC PLANNING STRATEGIC MANAGEMENT
COMPARISON

Stresses on It stresses on making optimal It stresses on producing strategic results,

strategic decisions. new markets, new products, new
technologies etc.

Management Strategic planning is a Strategic management is a management

management by plans. by results.

Process Analytical process Action-oriented process

Function Identifying actions to be taken. Identifying actions to be taken, the

individuals who will perform the
actions, the right time to perform the
action, the way to perform the action.

Strategic Management
Definition: The term ‘strategic management’ is used to denote a branch of management that
is concerned with the development of strategic vision, setting out objectives, formulating and
implementing strategies and introducing corrective measures for the deviations (if any) to
reach the organization’s strategic intent. It has two-fold objectives:

 To gain competitive advantage, with an aim of outperforming the competitors, to achieve

dominance over the market.
 To act as a guide to the organization to help in surviving the changes in the business
environment.
Here, changes refer to changes in the internal environment, i.e. within the organization,
introduced by the managers such as the change in business policies, procedures etc. and
changes in the external environment as in changes in the government rules that can affect
business, competitors move, change in customer’s tastes and preferences and so forth.

Strategic Management Process

1. Defining the levels of strategic intent of the business:
o Establishing vision
o Designing mission
o Setting objectives
2. Formulation of strategy
o Performing environmental and organizational appraisal
o Considering strategies
o Carrying out strategic analysis
o Making strategies
o Preparing strategic plan
3. Implementation of strategy
o Putting strategies into practice
o Developing structures and systems
o Managing behavioural and functional implementation
4. Strategic Evaluation and Control
o Performing evaluation
o Exercising control
o Recreating strategies
Strategic Management is all about specifying organization’s vision, mission and objectives,
environment scanning, crafting strategies, evaluation and control.

Importance of Strategic Management

 It guides the company to move in a specific direction. It defines organization’s goals and
fixes realistic objectives, which are in alignment with the company’s vision.
 It assists the firm in becoming proactive, rather than reactive, to make it analyse the actions
of the competitors and take necessary steps to compete in the market, instead of becoming
spectators.
 It acts as a foundation for all key decisions of the firm.
 It attempts to prepare the organization for future challenges and play the role of pioneer in
exploring opportunities and also helps in identifying ways to reach those opportunities.
 It ensures the long-term survival of the firm while coping with competition and surviving the
dynamic environment.
 It assists in the development of core competencies and competitive advantage, that helps in
the business survival and growth.
The basic purpose of strategic management is to gain sustained-strategic competitiveness of
the firm. It is possible by developing and implementing such strategies that create value for
the company. It focuses on assessing the opportunities and threats, keeping in mind firm’s
strengths and weaknesses and developing strategies for its survival, growth and expansion.

Strategic planning

Strategic planning is the process of identifying an organization's long-term goals and

objectives and then determining the best approach for achieving those goals and objectives.

The Strategic Planning Process

In today's highly competitive business environment, budget-oriented planning or forecast-

based planning methods are insufficient for a large corporation to survive and prosper. The
firm must engage in strategic planning that clearly defines objectives and assesses both the
internal and external situation to formulate strategy, implement the strategy, evaluate the
progress, and make adjustments as necessary to stay on track.
A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process

Mission &
Objectives

Environmental
Scanning

Strategy
Formulation
 Strategy
Implementation

Evaluation
& Control

Mission and Objectives

The mission statement describes the company's business vision, including the unchanging
values and purpose of the firm and forward-looking visionary goals that guide the pursuit of
future opportunities.
Guided by the business vision, the firm's leaders can define measurable financial and
strategic objectives. Financial objectives involve measures such as sales targets and earnings
growth. Strategic objectives are related to the firm's business position, and may include
measures such as market share and reputation.
Environmental Scan
The environmental scan includes the following components:
 Internal analysis of the firm
 Analysis of the firm's industry (task environment)
 External macroenvironment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external
analysis reveals opportunities and threats. A profile of the strengths, weaknesses,
opportunities, and threats is generated by means of a SWOT analysis
An industry analysis can be performed using a framework developed by Michael Porter
known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers,
substitute products, and industry rivalry.
Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to the
opportunities that it has identified, while addressing its weaknesses and external threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its
rivals. A competitive advantage can be based on cost or differentiation. Michael Porter
identified three industry-independent generic strategies from which the firm can choose.
Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures.
Implementation involves organization of the firm's resources and motivation of the staff to
achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it
will be successful. In a large company, those who implement the strategy likely will be
different people from those who formulated it. For this reason, care must be taken to
communicate the strategy and the reasoning behind it. Otherwise, the implementation might
not succeed if the strategy is misunderstood or if lower-level managers resist its
implementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes