Unit – 1

Subject: Business Policy

Subject Code - F010302T

Business Policy as a Field of Study

1. Business Policy

1.1 Meaning

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.

Policies are basically formulated by the two management or the general

management for guiding, directing and facilitating the thinking and acting process of
the various functional executives, to ensure the best contribution towards the
corporate objectives and goals. Policy can either is formal or informal, which can be
applied, implied or imposed.

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.

Business Policy is concerned with the top management function of 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,
economical, social and political change.

1.2 Nature of Business Policy

A business policy must be specific, clear, uniform, appropriate, simple, inclusive and
stable.
 Specific: If a policy is not specific, implementation becomes inconsistent and
unreliable. For example, “Employees may not park in the guest parking lot.”

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  Clear: A business policy has no ambiguity. It is written in easy-to-understand
language. For example, “Immediate release of employment is the result of
company drivers having two points on their driving record.”

 Uniform: The policy should be a standard that everyone can follow from the
top management to the plant workers. For example, “Anyone entering the
construction site must have a protective hat, shoes and glasses on at all times.”

 Appropriate: Business policies should be relevant to organizational goals and

needs. For example, “Discrimination and sexual harassment accusations are
investigated with disciplinary action applicable based on investigation findings.”

 Simple: Policy must be understood by all that it applies to within the business.
For example, “No smoking within 100 feet of welding operations designated by
the painted yellow floor lines.”

 Inclusive: A business policy isn’t something relevant to a small group in the

business, it must cover the wide scope and include everyone. For example,
“Business attire is required at all times in the office or meeting with clients.”

 Stable: This refers to implementation. If an incident arises, the policy should

be stable such that there is no indecisiveness about following it. For example,
“Cell phones are not permitted in the conference room.”

A business policy can be flexible in changing parameters in the business, the industry
or the marketplace. Using these features as a guide to creating any business policy
helps business leaders maintain a congruent structure in the company. Being nimble
in business and adjusting to an employee, consumer and market feedback is what
keeps great companies successful.

1.3 Importance of 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 are 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:

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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:

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.

9. Corporate Culture is Established:

When policies are clearly laid out in a written plan, expectations are set. This starts to
establish a corporate culture of what to do, what not to do and how to act. Employees
who are given expectations in a clearly outlined format, are better able to perform
those duties and tend to veer less often from the “script” than employees who are
employed in businesses that do not have clearly written policies.

2. Objectives in Knowledge, Skills and Attitudes

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Objectives of Business Policy

The objectives of business Policy can be derived from the purpose of business policy
and can be explained in following terms:-

2.1 Objectives in terms of knowledge

(1) The learners in business policy have to understand the various concepts involved.
Many of these concepts like strategy, policies, plans and programmes are encountered
in functional area courses too. It is imperative (very important) to understand these
concepts in the context of business policy.

(2) Knowledge about the environment – external and internal – and how it affects the
functioning of an organisation is vital in understanding business policy. Through the
tools of analysis and diagnosis, a learner can understand the environment in which a
firm operates.

(3) Information about the environment helps in the determination of the mission,
objectives and strategies of a firm. The learner can understand the environment in
which a firm operates.

(4) Implementation of strategy is a complex issue and is invariably the most difficult
part of strategic management. Through the knowledge gained in business policy, the
learner is able to visualize how the implementation of strategies can take place.

(5) To learn that problems in real-life business are unique and so are their solutions is
an enlightening experience for the learners. The knowledge component of such an
experience stresses the generalization of approach to be adopted in problem-solving
and decision-making. With a generalized approach, it is possible to deal with a wide
variety of situations. The development of this approach is an important objective to be
achieved in terms of knowledge.

(6) To survey the literature and learn about the researches taking place in the field of
business policy is also an important knowledge objective.

2.2 Objectives in Terms of Skills

(1) The attainment of knowledge should lead to the development of skills so as to

apply what is learnt. Such application takes place by an analysis of case studies and
their interpretation and by an analysis of the business events taking place around us.

(2) The study of business policy should enable a student to develop analytical ability
and use it to understand the situation in a given case or incident.

(3) Further, business policy study should lead to the skills of identifying factors
relevant indecision-making. The analysis of strengths and weaknesses of an
organisation, the threats and opportunities present in the environment, and the

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suggestion of appropriate strategies and policies form the core content of general
management decision-making.
(4) The above objectives, in terms of skill, increase the mental ability of learners and
enable them to link theory with practice. Such ability is important in managerial
decision-making where a large number of factors have to be considered at once to
suggest appropriate action.

(5) Case analysis, as a part of business policy study, leads to the development of oral
as well as written communication skills.

2.4 Objectives in Terms of Attitude

1. The attainment of knowledge and skill objectives should lead to the inculcation of
appropriate attitude among the learners. The most important attitude, developed
through the course, is that of a generalist. The generalist attitude enables the learner
to approach and assess a situation from all possible angles.

2. Dealing in a comprehensive manner, a generalist is able to function under

conditions of partial ignorance by using his or her judgment and intuition.
Typically, case studies provide only a glimpse of the overall situation and a case
analyst frequently faces a frustrating situation of working with less than the required
information. Experience has shown that managers, especially in the area of long-
range planning, have to work with in complete information. A specialist would tend to
postpone or avoid a decision under such conditions but a generalist could go ahead
with whatever information is available. In this way, he or she acts like a practitioner
rather than a perfectionist.

3. To possess a liberal attitude and be receptive to new ideas, information and

suggestions is important for a general manager. Dogmatism with regard to techniques
is to be replaced with a practical approach to decision-making for problem-solving. In
this way, a general manager acts like a professional manager.

4. An important attitude is to „go beyond and think‟ when faced with a problematic situation.
Developing a creative and innovative attitude is the hallmark of a general manager
who refuses to be bound by precedents and stereotyped decisions.

The objectives of business policy, in terms of knowledge, skills and attitude could be
further extended to the area of behaviour and performance. Having attained the
objectives in the classroom, or in an executive development programme, the learner is
expected to exhibit appropriate behaviour and good performance on the job. The
structure of business policy, built through theoretical study and exposure to case
studies, needs to be strengthened further through accumulation of experience as one
move up the managerial ladder. The richness and variety of experiences encountered
in real-life business offer opportunities of testing, validating, and replicating the
mental images and models developed in business policy course.

Such an approach imparts an added impetus (something that encourages something

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else to happen) to the development of general management capability which is the
sine qua non (an essential condition) for a manager who wishes to succeed in his or
her job and make a meaningful contribution to the organisation he or she works for.

From the above we have seen that objectives of business policy can be set in terms of
the knowledge gained, skills acquired, and attitude in calculated through study, which
offers a basis for building up a mental structure which can help in a systematic
aggregation of experiences when an executive is working at middle level. Such a
structure helps in the creation of general management capability

3. Top Management Functions, Roles and Responsibilities

The main levels of management are:

1. Top level management.

2. Middle level management.
3. Supervisory level, operational or lower level of management.

1. Top Level Management

Top level management consists of Chairman, Board of Directors, Managing Director,

General Manager, President, Vice President, Chief Executive Officer (C.E.O.), Chief
Financial Officer (C.F.O.) and Chief Operating Officer etc. It includes group of crucial
persons essential for leading and directing the efforts of other people. The managers
working at this level have maximum authority.

3.1 Main functions of top level management are:-

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a. Determining the objectives of the enterprise. The top level managers
formulate the main objectives of the organization. They form long term as well as
short term objectives.

b. Framing of plans and policies. The top level managers also frame the plans and
policies to achieve the set objectives.

c. Improving and Maintaining Efficiency, the top management has many roles
and responsibilities regarding the efficiency of the firm. Firstly it must ensure that the
firm is efficient, i.e. resources are not being wasted. And then this efficiency has to be
effectively maintained.

d. Assembling all the resources such as finance, fixed assets etc. The top
level management arranges all the finance required to carry on day to day activities.
They buy fixed assets to carry on activities in the organization.

e. Organizing activities to be performed by persons working at middle level.

The top level management assigns jobs to different individuals working at middle
level.

f. Responsible for welfare and survival of the organization—Top level is

responsible for the survival and growth of the organization. They make plan to run the
organization smoothly and successfully.

g. Innovation- It is the task of the top management to be innovative in their roles.

They must find new and creative solutions to the problems faced by the firm.
Innovation not only means having new ideas but also cultivating and implementing
them. This is one of the on-going jobs of a professional organisation.

h. Liaison with outside world, for example, meeting Government officials etc. The
top level management remains in contact with government, competitors, suppliers,
media etc. Jobs of top level are complex and stressful demanding long hours of
commitment towards organization.

i. Change Management - In any company or organization, change is given, the top

level has to acts as the change agent.

j. Leadership- The quality of the leadership usually dictates the future of a firm.
Hence the top management must present the good leadership. They should be able to
inspire and motivate people to work towards the goals of the company.

k. Welfare and survival of the organization.

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2. Middle Level Management

This level of management consists of departmental heads such as purchase

department head, sales department head, finance manager, marketing manager,
executive officer, plant superintendent, etc. People of this group are responsible for
executing the plans and policies made by top level.

They act as a linking pin between top and lower level management. They also
exercise the functions of top level for their department as they make plans and
policies for their department, organise and collect the resources etc.

3. Supervisory Level/Operational Level

This level consists of supervisors, superintendent, foreman, sub-department

executives; clerk, etc. Managers of this group actually carry on the work or perform
the activities according to the plans of top and middle level management.

Their authority is limited. The quality and quantity of output depends upon the
efficiency of this level of managers. They pass on the instruction to workers and
report to the middle level management. They are also responsible for maintaining
discipline among the workers.

3.2 Roles of top level management are:

1. Act as a Leader, the top management should provide direction and guidance to
their employees, motivates and inspires them to achieve common goals.

2. Monitor, the top management scans the internal and external environment for
information relevant to the organization.

3. Act and think as an entrepreneur, to identify and take advantage of opportunities

to improve the organization.

4. The top management handles and responds to all major unexpected events and
situations that disrupt the organization.

5. The manager communicates information and represents the organization to

external stakeholders.

4. The Concept of Strategy- Meaning and Importance.

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4.1 Meaning

Strategy refers to the plan of action designed by management for achieving the
goals of the business. It can be defined as a general direction set for the organization
and its related parts for reaching the desired future state in presence of uncertain
events. A strategy is an outcome of a detailed strategic planning process that
considers every aspect influencing the capability of the business to arrive at its goals.
It is a blueprint of decisions within an organization directing the manner in which
various activities need to be carried out. This specialized plan enables business in
facing the challenging environment and outperforming the market competitors.

The strategy is a very crucial element for a business in order to achieve its long-term
objectives. In absence of the right foresight, an organization cannot deal properly with
uncertain events existing in a business environment. A strategy is a collective
approach that acknowledges the objectives, uncertainty of events and also takes into
consideration the likely and actual behaviour of others. This way companies are well-
prepared for dealing with future situations and move towards success in the face of
difficulties.

4.2 Importance of Strategy

Following are the importance of strategy explained in details:-

1. Ensures Proper Allocation of Resources -While formulating a strategy the

strategist have to keep in mind information that they have access to and appraise all
possible outcomes before selecting a particular alternative. A good strategy help the
organisation in allocating resources in the efficient manner.

2. Provide Direction -Organisations lose their purpose in absence of proper guiding

strategies. Strategies direct an organisation to achieve its goals.

3. Synchronizes Activities - The comprehensive strategy help the organisation in

synchronizing the strategic initiatives taken at different levels.
Organisations can also be benefited by developing a master strategy that
encompasses the entire organisation. A companywide strategy also ensure that there
are no variations and all the departments are working towards achieving a single goal
with minimum conflicts, overlaps and contradictions in the organisation.

4. Facilitates Decision Making -Strategy facilitates decision making as strategy

and strategic initiatives act as a point of reference for any action.

5. Help Accomplishing Goals -Strategies enable a company to achieve its goals

and create a market position by allocating resources, providing proper training to
employees, enhancing the capacity of production etc.

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6. Improve Communication and Commitments -
Strategy helps in confirming company-wide actions communication and levels of
commitment between different department of the organisation by giving a clear
description of the vision and responsibilities.

7. Enables Comparison of Alternative Actions -

Strategy ensures that the valuable resources are allocated optimally. Strategies helps
in analyzing the record of previously adopted strategic initiatives and allow the top
level management to compare the alternative actions and select the best option
among them for different business units.

4.3 Nature of Strategy

The nature of strategy as explains by following points:

1. Set of Actions - Strategy is an arrangement of different action that are taken in

verifying situation to achieve certain objectives or to solve some problems.

2. Relates an Organisation with the Environment - Formulating strategy is an

important activity by which the enterprise can relate to its environment. With the help
of strategy an organisation can interact with the factors of external environment so
that the management can take necessary steps to achieve the organisational goals.

3. Provide Structure - Strategy develops a fundamental road map for providing

guidance to the enterprise for making relation decisions and achieving organisational
goals. Strategy used to establish and communicate the image of the organisation with
the help of its various goals and objectives.

4. Future Oriented -Strategy can be said that it is future oriented. Strategies are
formulated to solve problems that are new and have not been previously handled by
the organisation.

5. Integrated Approach - Strategy directs and support the enterprise in taking

necessary decision for maximizing the strength and facing the environmental threats
with confidence. A good strategy follows and interactive approach for allocating
internal resources and using them for the benefit of the entire organisation.

6. Involves Contradictory Actions -Strategic actions are influenced by

environment factors at times certain decisions taken on the basis of the strategy may
be contradictory in nature. These actions may occur simultaneously or consecutively.

7. Combination of Internal and External Factors -Strategy tries to match the

internal strength and meet external opportunity and threats. Therefore it is a
combination of internal and external factors of the environment.

8. System Oriented -To work efficiently, strategy operates under a certain system
that consists of rules and standards followed in the organisation.

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 Basis Of
Difference Strategy Policy
A strategy provides a direction in A policy provides guidelines
which the organisation needs to go to the employees for decision
Meaning
for achieving the organisational goals making and smooth
by employing various resources. operations.

5. Deducing Strategy and Articulating a Summary Statement of

Strategy.

5.1 Deducing strategy

Understanding Deductive Strategy

Deductive reasoning is an important skill that can help you think logically and make
meaningful decisions at the workplace. This mental tool enables professionals to come
to conclusions based on premises assumed to be true or by taking a general
assumption and turning it into a more specific idea or action. Here we explore what
deductive strategy is, how it differs from other types of strategies, how to use this
strategy at the workplace.
Deductive strategy is the act of coming to a conclusion based on information that is
assumed to be generally true. Deductive strategy, also referred to as deductive logic
or top-down thinking, is a type of logical thinking that’s used in various industries and
is often sought after by employers in new talent. The following is a formula often used
in deduction: If A = B and B = C, then in most cases A = C. So, for example, if traffic
gets bad starting at 5 p.m. and you leave the office at 5 p.m., it can be deductively
reasoned that you’ll experience traffic on your way home.

These two types are different from one another. Inductive strategy mainly focuses
on building new theories, whereas deductive strategy focuses on verifying theories.
This is the main difference between the two types of research.
Deductive strategy follows a top-down approach. Inductive strategy follows a bottom-
up approach. Deductive strategy starts from Premises. Inductive strategy starts from
the conclusion.

5.2 Summary Statement of Strategy

Strategy statements are an effective tool for communicating a company or

organization’s vision. Consider different strategy statement examples to learn how to
write a powerful message that inspires your employees.

Strategy Statement Definition

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A strategy statement is an explanation of a business or organization’s purpose, goals,
and resources. These types of vision statements outline a strategic plan for the
company’s direction. By explaining how a business model stands out from
competitors, strategy statements provide employees with a strong understanding of
the organization’s purpose. While any organization or business can implement a
strategy statement, they are especially useful for startups and companies entering a
new market.

Importance of a Strategy Statement

Strategy statements are important because they communicate a clear roadmap for
moving forward. As a long-term plan, strategy statements provide stakeholders with a
set of goals and initiatives that reflect the business plan. Strong strategy statements
unite and focus team members according to the organization’s mission, instilling a
strong sense of purpose and motivation throughout the company. Strategy statements
are also important because they make a company’s strategy clear to potential
customers and partners.

Key Elements of a Strategy Statement

There are three main elements of a strategy statement. These statements include:

1. Competitive advantage: Under the category of competitive advantage, there are

three main factors: value proposition, value discipline, and business model canvas.
The purpose of the competitive advantage portion of a strategy statement is to
communicate how your product strategy is distinct from competitors. As you and your
team outline your competitive advantage, consider your target customer and how
your core values connect your company with potential buyers.

2. Objective: The driving force behind any strategy statement is the objective, a
single, strategic goal that describes the organization’s aspirations. An effective
objective is specific and time-bound. It’s also important to identify the type of
market—new or existing—and the metrics for measuring your strategic objective over
time.

3. Scope: A strategy statement also explains resource allocation. The scope considers
this factor by outlining the target audience, geographic location, and product. By
identifying these components, companies can communicate where resources should
go to best meet the demands of the scope dimensions.

How to Write an Effective Strategy Statement?

An effective strategy statement is clear and concise. It should provide employees with
a concrete description of the company’s plan for future years.

1. Reflect on your values. Before brainstorming your goals, consider your

organization’s values. Reflecting on the company culture and core beliefs allows you

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to determine what matters most to the organization. A strategy statement rooted in
purpose is more meaningful and effective.

2. Identify your main goals. After identifying your core values, create a template
for your long-term goals. During this stage of the planning process, consider
organizing a company-wide meeting to include all team members in the decision-
making. As a team, brainstorm different objectives that relate to the company’s
purpose. Review the list of goals, and decide which objective best aligns with your
future business strategy.

3. Create a product strategy. A product strategy is a prerequisite for an effective

strategy statement. It communicates the value of the product or service your
company offers. Developing a clear description of your product and its marketing
strategy helps organizations generate a strong template for a strategy statement.

4. Draft a statement. Keep your strategy statement short, aiming for two to three
sentences to state your intent. Include the three elements—competitive advantage,
objective, and scope—in your strategy statement.

5. Revise. Review your statement as a team and change any awkward wording to
ensure your business objectives are clear and concise. When your strategy statement
communicates the full potential of your organization, it’s ready to share.

3 Strategy Statement Examples

Consider the following strategy statements examples based on different objectives:

1. Customer satisfaction: When writing a strategy statement that communicates

the customer experience, focus on your target audience. You can write: “Our
customers live fast-paced lives, so we’re streamlining services to improve
connectivity.”

2. Financial growth: Revenue-based strategy statements are another approach you

can adopt. To communicate your financial plans, consider writing: “Our goal is to
increase shareholder value by growing profits with our new line of products.”

3. Idea development: If your strategy objective is to spread ideas, develop a

statement that highlights your vision. You can write: “As a leading innovator in the
transportation sector, we’re releasing sustainable vehicles that reduce carbon
emissions.”

Your strategy statement might include financial plans, customer service goals or
details about product sales and development.

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Strategic objective examples

"Grow and diversify revenue base"

"Improve resource management"
"Develop fundraising options"
"Improve headquarters productivity"
"Modernize technology infrastructure"
"Enhance board involvement"
"Increase community outreach"
"Develop and implement a marketing plan to drive business"
"To increase revenue by 10% annually"
"To decrease expenses by 5% annually"
"Expand sales to the global marketplace"
"Develop and utilize a customer database"

Scope examples

"Increase customer satisfaction"

"Develop and text user-friendly products"
"Expand customer relationships"
"Increase marketing budget by 5%"
"Update and develop company website"
"Increase internet participation and social media involvement"
"Increase product accessibility in stores and online"
"Develop promotional plans to increase sales"
"Update employee training process"
"Facilitate a collaborative and productive workplace"
"Focus on consumer feedback and targeted advertisement"

Competitive advantage examples

"Access to resources unavailable to competitors"

"Ability to manufacture products at lower cost than competitors"
"Strong brand recognition"
"Unique geographic location"
"Access to new and developing technology"
"Effective marketing strategy proven to increase revenue"
"Unique product design"
"Innovative work environment that inspires growth and development"
"Highly trained employees with relevant skills and experience"
"Opportunities for increase in revenue by 10% annually within five years"

6. Strategic Intent: Vision, Mission, Business Definition.

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Strategic Intent

Strategy, a plan that you use in order to achieve something. Intent, determined to
do something. Strategic intent is the term used to describe the aspirational plans,
overarching purpose or intended direction of travel needed to reach an organisational
vision.
An organization’s strategic intent is the purpose that it exists and why it will continue
to exist, providing it maintains a competitive advantage. Strategic intent gives a
picture about what an organization must get into immediately in order to achieve the
company’s vision. It motivates the people. It clarifies the vision of the vision of the
company.
Strategic intent helps management to emphasize and concentrate on the priorities.
Strategic intent is, nothing but, the influencing of an organization’s resource potential
and core competencies to achieve what at first may seem to be unachievable goals in
the competitive environment. A well expressed strategic intent should guide/steer the
development of strategic intent or the setting of goals and objectives that require that
all of organization’s competencies be controlled to maximum value.
Strategic intent includes directing organization’s attention on the need of winning;
inspiring people by telling them that the targets are valuable; encouraging individual
and team participation as well as contribution; and utilizing intent to direct allocation
of resources.

1. Vision: Vision implies the blueprint of the company’s future position. It describes
where the organization wants to land. It is the dream of the business and inspiration,
base for the planning process. It depicts the company’s aspirations for the business
and provides a peep of what the organization would like to become in future. Every
single component of the organization is required to follow its vision.
2. Mission: Mission delineates the firm’s business, its goals and ways to reach the
goals. It explains the reason for the existence of the business. It is designed to help
potential shareholders and investors understand the purpose of the company. A
mission statement helps to identify, ‘what business the company undertakes.’ It
defines the present capabilities, activities, customer focus and business makeup.
Mission statement is what your company is doing right now.
3. Business Definition: It seeks to explain the business undertaken by the firm,
with respect to customer needs, target audience, and alternative technologies. With
the help of business definition, one can ascertain the strategic business choices. The
corporate restructuring also depends upon the business definition.
4. Business Model: Business model, as the name implies is a strategy for the
effective operation of the business, ascertaining sources of income, desired customer
base, and financing details. Rival firms, operating in the same industry relies on the
different business model due to their strategic choice.
5. Goals and Objectives: These are the base of measurement. Goals are the end
results, that the organization attempts to achieve. On the other hand, objectives are
time-based measurable actions, which help in the accomplishment of goals. These are

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the end results which are to be attained with the help of an overall plan, over the
particular period. A goal is a statement of the desired outcome to be accomplished over a
long time frame, usually three to five years. It is a broad statement that focuses on the
desired results and does not describe the methods used to get the intended outcome.

Objectives are specific, actionable targets that need to be achieved within a smaller
time frame, such as a year or less, to reach a certain goal. Objectives describe the
actions or activities involved in achieving a goal. Policies are developed in an
organization so as to achieve these objectives.

Some common examples of business goals include the following:

 Maximizing profits
 Growing revenues
 Increasing efficiency
 Providing excellent customer service
 Becoming an industry leader
 Creating a brand
 Becoming carbon-neutral

Following are some examples of objectives:

 Earn a minimum of 15% return on investment in a fiscal year

 Increase the company’s market share to 7% by the end of the next fiscal year
 Cut down the operating costs by 10% within two years
 Reduce the response time for sales inquiries to 12 hours by the end of this quarter

Ford Motor Company Vision Statement

Our aspiration: To become the world’s most trusted company, designing smart
vehicles for a smart world.

Ford Motor Company Mission Statement

Our Purpose: We are here for one purpose, to help build a better world, where every
person is free to move and pursue their dreams

Ford Motor Company Values

 Put People First
 Do the Right Thing
 Create Tomorrow
 Play to Win
 Be Curious
 Built Ford Tough

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The vision, mission, business definition, and business model explains the philosophy
of business but the goals and objectives are established with the purpose of achieving
them.

7. Strategic and Financial Objectives.

7.1 Strategic objectives

Strategic objectives are goals on non-financial factors that the company aims to
achieve with a specific indicator that will allow it to be measured in a specific period of
time.

 Increase number of employees.

 Positioning the brand.
 Diversifying supply.
 Promote a work environment thus to increase efficiency in the processes of the
organization.
 Consolidate the business as a solid and orderly organization.
 Use the appropriate human resources.
 Agile (able to move quickly and easily) processes focused on innovation.
 Give customer benefits for choosing our brand.
 Consolidate good relations to retain customers.

7.2 Financial Objectives

For a company, a growing company it is vital to set goals, for this is necessary to
impose a series of objectives that will support the success of these goals, among them
are the financial objectives that provide the basis for a solid plan to move forward on
the path of success for our organization these financial goals are:

 Growth income - It is essential for us to present solid annual revenues with a

margin of 20% increase from the first 5 years, so from the second year cover initial
expenses and generate the expected profits.

 Profit margins - Obtain profit margins to meet the needs of the organization and
include it to also invest in the business for expansion and distribution among
employees in a profit-sharing agreement.

 Sustainability - We refer to the characteristics of development that will have the

business in order to hold and at the same time provide more jobs and a steady
improvement gradual growth.

 Return of investment - This term return on investment refers to money recovered

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for capital spending, our company expects to get 100% return on investment within 2
years of profit, generating a profit margin of 20% the first 5 years and longer 40%
from the sixth

8. Components of Strategic Formulation Process

Strategy formulation is the process of selecting the most appropriate and efficient
ways to realize an organization’s vision and help it realize its goals and objectives.
The strategy formulation process is a part of strategic management and involves
using several analytical tools to figure out the best way to use an organization’s
resources. Strategy formulation allows an organization to create a financial blueprint
for creating profits and being sustainable in the long haul.
The most popular way of examining a strategy formulation process is through the
SWOT analysis. SWOT is an acronym for strengths, weaknesses, opportunities and
threats. It provides a detailed and comprehensive analysis on strategy
formulation and helps an organization determine whether a particular strategy is fit to
be implemented.

Definition: Strategy Formulation is an analytical process of selection of the best

suitable course of action to meet the organizational objectives and vision. It is one of
the steps of the strategic management process. The strategic plan allows an
organization to examine its resources, provides a financial plan and establishes the
most appropriate action plan for increasing profits.

8.1 Levels of Strategy

1. Corporate Strategy -Corporate strategies guide an organisation to become what

it wants to be in order to maximize the performance levels. Corporate level strategy
defines the business areas in which the firm will operate. It deals with aligning the resource
deployments across a diverse set of business areas, related or unrelated. Strategy formulation
at this level involves integrating and managing the diverse businesses and realizing synergy at
the corporate level. The top management team is responsible for formulating the corporate
strategy. The corporate strategy reflects the path toward attaining the vision of the
organization.

Corporate level strategies or corporate strategies are plans of top level management
developed for supervising the overall functioning of the enterprise and achieving the
expected level of performance. These strategies outline the organisational activities
and objectives in various areas of an organisation like product line, divisions,
technologies, consumers and their needs etc.
For example :
The efforts of Nokia to launch its own operating system failed, in the year 2011.
Microsoft and Nokia formed an alliance in which Nokia agreed to produce
smartphones with the Windows operating system. With this alliance, Microsoft was
able to access the market of one of the largest cell phone manufacturer. Nokia was
able to retain its market share with the help of this merger. For example, your firm

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may have four distinct lines of business operations, namely, automobiles, steel, tea,
and telecom. The corporate level strategy will outline whether the organization should
compete in or withdraw from each of these lines of businesses, and in which business
unit, investments should be increased, in line with the vision of your firm.

2. Business Strategy -Business level strategies are also called as Business

Strategies or Strategic Business Unit, Level Strategy. A Strategic Business Unit
(SBU) is based on the idea of recognizing the separate market segments catered by
the company. Business strategies are formulated differently for each segment due to
the differences in their environment conditions. The business level strategies are
formulated to satisfy the need of the customers of different segments and also to
provide value to them. Hence, fulfilment the demands of customers belonging to
different segments help the organisation in increasing and sustaining is competitive
advantage. Business level strategies are formulated for specific strategic business units and
relate to a distinct product-market area. It involves defining the competitive position of a
strategic business unit. The business level strategy formulation is based upon the generic
strategies of overall cost leadership, differentiation, and focus. Cost leadership (company's
ability to lower costs of production to offer quality products at low prices.). Focus
strategy is essentially a core marketing strategy that allows organizations to identify
the specific needs of a niche market and develop products aligned with these needs. A
differentiation strategy is an approach businesses develop by providing customers
with something unique, different and distinct from items their competitors may offer
in the marketplace.

For example:
Domino's Pizza owes its success to Turnaround strategy that had positive effect due
to the organisation wide efforts of achieving a simple and clear goal that was "have a
clear win against competitor in a taste test". For example, a firm may choose overall cost
leadership as a strategy to be pursued in its steel business, differentiation in its tea business,
and focus in its automobile business.

3. Functional Strategy - Functional level of an organisation provides input to a

higher level strategies such as business level and corporate level strategies and
convert them into the action plans for various department. These plans are needed to
be carried out for the strategy to be successful. Higher level strategies depend on the
functional level for information regarding resources and capabilities on the basis of
which strategies at business and corporate level are formulated.
Functional level denotes the operating division level and apartment in an organisation
such as marketing, finance, human resources, information system, manufacturing and
research and development etc. various strategic decisions at functional level are
associated with business practices and value chain. The functional level strategies are
focused on expanding and synchronizing the resources for implementing the business
level strategies in an efficient manner.
For example:
Marketing strategy can be broken into various functional level strategies such as
pricing strategies, promotion strategies, distribution strategies, sales strategies etc.
For example, the marketing strategy for a tea business which is following the

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differentiation strategy may translate into launching and selling a wide variety of tea
variants through company-owned retail outlets. This may result in the distribution
objective of opening 25 retail outlets in a city; and producing 15 varieties of tea may
be the objective for the production department. The realization of the functional
strategies in the form of quantifiable and measurable objectives will result in the
achievement of business level strategies as well.

8.2 Process of Strategy Formulation:

The strategy formulation involves the following steps:

Step # 1. Developing Strategic Vision:

1. Vision specifies what direction or path to follow.

2. Specify what products, markets, technologies and customer policies to follows
3. Vision communicate management aspirations to stack holders of company.
4. Helps to boost morale of organization and engages them for a common
direction.
5. Clear vision helps to provide a motivated and stimulated environment in the
organization.
6. Vision specify management aspiration for the business in long-term.

Step # 2. Setting Objectives:

Corporate objectives are outcome of “Mission and Vision” of organization. Objectives

define specific performance targets, results and growth that organization wants to
achieve.

To determine the objectives an approach known as Balance Score Card is used.

Balance Score Card Approach:

Overall a company should set both strategic and financial objectives. However,
organization can use Balance Score Card approach for setting objectives. This
approach states that “Organization should focus more on achieving strategic
objectives – like “performance”, “customer satisfaction”, “innovation” and
“profitability” – than financial objectives (i.e., profit and profit growth) only.

Balance Score Card also provides a basis to measure company performance against
set objectives.

Company strategic and financial objectives should be set both as, short-term and
long-term objectives.

Long-Term and Short-Term Objectives:

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Long-Term Objectives:

1. Profitability.
2. Productivity.
3. Competitive Position.
4. Employee Development.
5. Employee Relations.
6. Technological Leadership.
7. Public Responsibility.

Long-term objectives represent the results expected from pursuing certain strategies,
usually from two to five years.

Qualities of Long-Term Objectives:

1. Acceptable
2. Flexible
3. Measurable
4. Motivating
5. Suitable
6. Understandable
7. Achievable.

Objectives are commonly stated in the following terms; growth in assets, growth in
sales, profitability, market share, degree and nature of diversification, degree and
nature of vertical integration, earnings per share, and social responsibility.

Short-range objectives can be identical to long-range objectives for example, if a

company has long- term objective of 15 percent profit growth every year, then the
company’s short-term objective would also be 15% profit growth for current year.

Concept of Strategic Intent:

Here intent refers to intension. A company exhibits strategic intent when it relentlessly
(aggressively) pursues an ambitious strategic objective and concentrates its full
resources and competitive actions on achieving that objective.

A company’s strategic intent can helps in many ways to the company, like –

1. In becoming the dominant company in the industry;

2. Unseating the existing industry leader;
3. Delivering the best customer service in the industry (or the world);
4. Turning new technology into products which capable of changing the way
people work and live.

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Sometime ambitious companies begin with strategic intents that are out of proportion
to their immediate capabilities and market positions. But they continuously work
hard— even achievement of objective may take a sustained effort of 10 years or
more. Moreover, on reaching one target they stretch the set objectives and again
pursue them relentlessly, sometimes even obsessively.

The Need for Objectives at all Organizational Levels:

Objective setting should not stop with top management’s setting the companywide
performance targets. Company objectives need to be broken down into performance
targets for each separate business, product line, functional department, and individual
work unit.

Company performance can’t reach full potential unless each area of the organization
does its part and contributes directly to the desired companywide outcomes and
results. This means that objectives should be given to each and every business units
and those should be combined with overall company objectives.

Step # 3. Crafting a Strategy to Achieve the Objectives and Vision:

A company can achieve its mission and objectives when all the components of a
company work together. A company’s strategy is at full power only when its many
pieces are united. Achieving unity in strategy planning and formulation is partly a
function of communicating the company’s basic strategy themes effectively across the
whole organization.

A company’s strategic plan lays out its future direction, performance targets, and
strategy.

“Developing a strategic vision, setting objectives, and crafting a strategy are basic
direction-setting tasks”.

Vision, Objectives and crafting a strategy set the both short-term and long-term
performance targets for organization. Together, they constitute a strategic plan to
deal with industry and competitive conditions.

For crafting or developing a strategy many assessments are performed.

However, three assessments are very important:

1. The first determine organizational strengths and weaknesses.

2. The second evaluates competitor strengths, weaknesses, and strategies,
because an organization’s strength is of less value if it is neutralized by a
competitor’s strength or strategy.

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 3. The third assesses the competitive environment, the customers and their
needs, the market, and the market environment.

These assessments, based on the strategy selected, focus on finding how attractive
the selected market will be. The goal is to develop or formulate a strategy that
exploits business strengths and competitor weaknesses and neutralizes business
weaknesses and competitor strength.

Step # 4. Implementing & Executing the Strategy:

Strategy implementation and execution is an operations-oriented activity. This stage is

the most demanding and time-consuming part of the strategy-management process.

Till now, in the above stages everything was planning only. In this stage above plans
are given actions. In this stage, based on company and competitor’s strength and
weaknesses various activities are implemented.

This stage is like management process and includes followings:

1. Staffing the organization with the needed skills and expertise.

2. Developing budgets and organizing resources to carry out those activities which
are critical to strategic success.
3. Using the best-known practices to perform business activities and pushing for
continuous improvement.
4. Motivating people to pursue the target objectives energetically.
5. Tying rewards and incentives directly to the achievement of performance
objectives and good strategy execution.
6. Creating a company good culture and work climate for successful strategy
implementation and execution.
7. Keep on improving strategy execution and when the organization encounters
stumbling blocks or weaknesses, management has to see that they are
addressed and rectified quickly.

Good Strategy Execution Involves Creating Strong “Fits”:

1. Between strategy and organizational capabilities.

2. Between strategy and the reward structure
3. Between strategy and internal organization working systems, and
4. Between strategy and the organization’s work climate and culture.

Step # 5. Monitoring Implemented Strategy and Making Corrective

Adjustments:

A company’s vision, objectives, crafting strategy, and implementing and execution of

strategy are not final thing in strategic management – managing strategy is an
ongoing process.

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There is one more stage in the corporate strategy management and that stage is—
monitoring and evaluating the company’s progress. As long as the company’s strategy
is going well, executives may remain stick to implemented strategy except more
changes are required with time.

But whenever a company encounters disruptive changes or downturn in its market

positions then company managers are required to search out whether the reasons of
downturn are due to poor strategy, poor execution, or both to take timely corrective
action.

A company’s direction, objectives, and strategy have to be revisited anytime external

or internal conditions warrant. It is to be expected that a company will modify its
strategic vision, direction, objectives, and strategy over time, if required.

9. Classification of Business Policy

Policies may be divided into different types of policies from different approaches.

A. On the Basis of Source:

Koontz and O’Donnell divide the sources of policy into the following four
types:

(i) Originated Policy

(ii) Appealed Policy
(iii) Implied Policy
(iv) Externally imposed policy

1. Originated Policy:

Policies which are framed by the top executives, and directs the employees about
what decisions they can take in a particular situation. Hence, the employees are
supposed to follow them strictly. These policies are aimed at guiding the managers
and their subordinates in their operations.

2. Appealed Policy:

If a subordinate is confused regarding if he/she possesses sufficient authority to look

after the situation or not, in that case, the subordinate may seek an order from the
superior. This order is said to be appealed authority. In case of doubts, an executive
refers to higher authority on how he should handle the matter.

3. Implied Policy:

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Implied policy is meant policies which originate from conduct. It also originates where
existing policies are not enforced. Again, guidelines may be provided by the decision
makers unconsciously and become implied policies.

4. Externally Imposed Policy:

Imposed policies are the ones imposed on the business, by the external agencies like
government, suppliers, trade unions, industry associations, creditors, etc.

B. On the Basis of different Levels:

Policies are divided into the following types on the basis of levels:

1. Basic Policies.
2. General policies.
3. Departmental Policies.

1. Basic Policies:

Policies which are pursued by top management level are called as basic policies. For
example, the branches will be opened in different place where the sales exceed Rs.
Five, lakhs.

2. General Policies:

General Policies are for middle-level management, as they are related to the company’s day
to day operations and dealings. Example: Payment will be provided for overtime work
only if it is allowed by the management.

3. Department Policies:

Departmental policies are specific in nature as they are framed for the particular
department only. For instance marketing policies, production policies, personnel
policies, purchase policies, finance policies, research and development policies..
Example: Tea will be provided free for workers in night shifts.

C. On the Basis of Managerial Functions:

Policies arise from decision pertaining to fundamental managerial functions are called
managerial policies.

These includes the following policies:

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 1. Planning policies.
2. Organisation policies.
3. Motivation and control policies.

1. Planning Policies:

Planning policies involve the future course of action. Mere policies are formulated as
to achieve the targets regarding the future. Planning policies may formulate for whole
organisation or for divisional departments.

2. Organisation Policies:

These policies are highly specific to organisational goals and objectives.

3. Motivation and Control Policies:

Here policies are formulated to motivate people and control the activities, which leads
to achieve the organisational objectives with the fullest satisfaction of employees.

D. On the Basis of Dissemination:

Policies can be classified into two types on the basis of dissemination:

1. Written statements—Explicit policies.

2. Oral dissemination—Implicit policies.

1. Explicit Policies:

Policies which are in writing or included in the manual or records are called explicit
policies. In case of written statements adequate media should be used.

The following are some of the written media:

(a) Bulletins or notice boards.

(b) News releases.
(c) Company manuals or handbooks.

2. Implicit Policies:

Implicit policies are disseminated merely by word of mouth through the key people in
an organization. Policies which are not in writing or not included in the manuals or
records but which are well understood and practiced are called implicit policies.

E. On the Basis of Functions:

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Policies which affect the functions of business are called as functional policies.

Functional policies can be classified as follows:

1. Marketing policies.
2. Production policies.
3. Finance policies.
4. Personnel policies.

1. Marketing Policies:

Basically marketing policies relate to each of the “four Ps in marketing” namely.

(a) Product,
(b) Pricing,
(c) Promotion, and
(d) Physical distribution.

(a) Product Policies:

In connection with product policies for example a policy decision might have to be
taken as to whether to make or buy the product. Policy decisions might have to be
laid down with regard to the nature and extent of diversification, for example whether
diversification in the future will always be in terms of related products or whether new
product ideas can be considered in connection with unrelated products.

The make or buy decision can also be a part of the product on policy but can be part
of the marketing strategy which is concerned with the overall strategy of the business.

(b) Pricing Policies:

Policy decisions have to be taken in the area of pricing. The market segment or
segments aimed at determination of price range. The policy decisions on pricing are
also affected by the type of trade channels and the discounts that might have to be
offered.

(c) Promotion Policies:

The promotional policy is also tied in with the pricing policies. The policy to
concentrate on certain advertising media would be dictated in terms of product
policies and the customer segment involved. Policy decisions would also help in
arriving at the amount to be spent on promotional activities.

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Certain organizations fix a policy of budgeting a certain percentage, say 5% of the
rates for advertising expenditure. Some organizations adhere the policy of certain
fixed return on investment for arriving at the advertising expenditure to be permitted.

(d) Physical Distribution Policies:

Policy decisions have to be taken in the area of physical distribution of the product
which involves considerations of channels of distribution and logistics. Difficult policy
decisions are involved in arriving at the selection of an appropriate set of distribution
channels for the products of the company. Some organizations prefer to give sole
distribution ships. Some others advocate the policy of direct selling.

2. Production Policies:

Production policy decisions involves with the following:

1. a) The size of the run,

2. b) Automation,
3. c) Production stabilisation,
4. d) Extent of making or buying component, and
5. e) Inventory levels.

(a) The Size of the Run Policy:

This depend on the backlog or orders as well as the nature of automation introduced.
It will also depend on the type of the market. The temptation is to increase the size of
the run to take advantage of avoiding the setup costs. However, these have to be
weighed against the cost of heavier inventories.

(b) Automation Policy:

The automation involves consideration of technical problems apart from economic

aspects. The policy of increasing automation or mechanisation may be merely with a
view to avoid repetitive and uninteresting work or it may be to reduce costs. Policy
decisions, however, have to be taken in this behalf at the top level.

(c) Production Stabilisation Policy:

It is related to the size of the run and the extent of automation. Production has to be
stabilized through proper timing as market demands cannot be overlooked.

(d) Make or Buy Policy:

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It is related to both the marketing policy as well as production policy. Policy decisions
have to be taken as to the extent of the product that has to be manufactured within
the organisation itself and the extent, if any of purchases from outside.

(e) Inventory Levels Policy:

This policy involves with the levels of inventory or stocks. These should be maintained
in the exact extent. Higher inventories increase the costs and reduce the ultimate
profits.

3. Financial Policies:

Financial policies related to the following:

(a) Sources of capital

(b) Working capital
(c) Profit distribution.
(d) Depreciation allowances.

(a) Sources of Capital:

This policy involves the sources of capital, `that is from which ways, an organisation
can accumulate its capital. For example in case of sole trader, he/ she provide the
capital form his/her own money or by loans from individual or bank. In partnership,
partners provide the basic capital. In companies, large capital is possible from large
number of shareholders.

(b) Working Capital Policy:

The difference between the current assets and current liabilities is the working capital.
Since the working capital determines how far the business organisation or business
unit can immediately meet its obligations, the policy decision will have to take in the
area of working capital. These policies are also concerned with the extent of bank
borrowings permissible and allowances of credit facilities that should be extended to
the customers.

(c) Profit Distribution Policy:

It involves with regard to how much profits should be distributed by way of dividends
to the shareholders and how much should be kept back for future capital
requirements. Some companies follow a policy of dividend equalization by setting
aside profits in good years to be used for payment of dividend in lean years.

(d) Depreciation Allowance Policy:

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Policy decisions have to be taken on the extent of depreciation to be written off whilst
keeping in mind the tax provision as well as its possible use as a source of funds for
the enterprise.

4. Personnel Policies:

This policy decisions have to be taken in connection with personnel administration.

These relate to the following.

(a) Personnel selection.

(b) Training and promotion.
(c) Remuneration and benefits.
(d) Industrial relations.

(a) Personnel Selection Policy:

It involves with the source of recruitment e.g., policy decisions may be taken with
regard to the minimum educational or experience requirements.

(b) Training and Promotion Policy:

Policy decisions have to be taken with regard to manpower planning and filling up
higher vacancies by promotion from within. A policy of promotion from within
presupposes the existence of adequate training policies to develop persons for each
higher position.

(c) Remuneration and Benefit Policy:

These policies regard with the remuneration and other benefits of employees. Other
benefits include sick leave, vacations, canteen facilities and working conditions. In
case of sales force, some organizations prefer to rely merely on salaries, but some
other companies wish to build in a commission component to provide the necessary
incentive.

(d) Industrial Relations Policies:

Proper policy decisions must be taken in connection with dealing with labour disputes
and avoiding them in the future.

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