Business policy is hardly new. It is as old as when man started negotiating economic gains. When men introduced trade by barter and were guided by principles and rules, they were practising business policy. Business policy as defined by Christensen et al (2011),
is “the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise and the decisions that determine the direction of the organisation and shape of its future. The basic problems of policy in business like those of policy in public affairs, have to do with the choice purposes, the moulding of organisational identity and character, the continuous definition of what needs to be done and the mobilisation of resources for the attainment of goals in the face of competition or adverse circumstances.”
Akinyele et al put it succinctly when they said business policy is a guide and roadmap to create awareness and direction to the management of any organisation. It publicises the rights and obligations of different rung of the ladder – horizontal and vertical of the different capital be it human resource engagement or finance utilisation etc. It ensures that organisations deliver better end product within a framework. It encourages, promotes and improves performance attainment in an organisation.
Policy provides the bedrock for vision and mission statement of the business organisation along the corporate objectives and goal. Policy describes entities enterprise outlook m in that it enables the business to be assessed and given an image by the way they carry out their responsibilities along with their relationships with their clients/customers. It is the ‘barometer of playing by the rule and it gives purpose to the strategy thrust of the organisation.
In simple terms, business policy can be described as those organised commercial activities an organisation or a person intends to do or does and body of principles underlying such activities.
Kazmi (2008) summarized business policy as variously defined by others as:
- The study of functions and responsibilities of the senior management related to those organisational problems which affect the success of the enterprise as a whole
- The determination of future course of action by the organisation
- The choice of purpose and defining what needs to be done in order to mould the character and identity of the organisation
- The mobilization of resources by the help of which the organisation can achieve its goals.
The senior management responsibilities are not carried out in isolation, they provide the resources – financial, material and human that would be required for the implementation of the long-term plans. The role of senior managers will be discussed.
Objectives of Business Policy
The main objective of business policy is performance driven which ensures delivery of service or product depending on purpose for which the business was set up – service or product oriented.
Business policy specific objectives ensure:
- efficiency and effectiveness in performance of duties
- equal provision of services and treatment of customers
- better management and provision of better quality services
- utilisation and application of resources
- formulation of mission statement
- establishment of vision of the organization
Policies are always aligned with the objectives of the enterprise if it is to be effective. All policies follow parallel courses and directly related to objectives. If they cross or oppose objectives, collective effect is lost and disorder would prevail. Misunderstanding and confusion are often the cause of problems and poor results rather than faults in the stated policy (Adeleke, et al 2005).
Purpose of Business Policies
Business organisations create policies that suit their operations and environment. Irrespective of the size of the business, business policies can be simple to write and implement. Some of the purpose for which business create their own policies include:
- to drive strategic planning and help set expectations and performance
objectives
- to facilitate more efficient internal operations
- to engage and align the values of stakeholders; and build mutual understanding of expectations and challenges
- to ensure accountability and create transparency
- to encourage and promote ethical and responsible decision-making for risk assessment and risk mitigation helps streamline new staff orientation by providing consistency, clarity, understanding of the goals and culture of the company
- result in time savings by stating how issues should be handled instead of discussing and debating them every time they come to the forefront
- it ensures entities meet legal requirements; some laws require employers to adopt certain policies to guide the actions of their staff and management. Example is racism, discrimination/harassment Policy.
Reasons for Formulating Policies
Many professionally managed businesses acknowledged that it is necessary to have policies in all the major functional areas of management. The focus areas will thus include purchasing policy, production policy, marketing policy, selling and promotional policy, research and development policy etc. All these policies are expected to give support to the overall objectives of the organisation as defined by the top management and they complement each other. Akinyele et al suggested some of the major reasons for having policies as follows:
- Consistent decision making: It is impossible and wrong to rely on expediency or precedents to solve problems which arise intervally or regularly. To that extent, decision-making is more consistent and detailed when policy is defined and known.
- Vision continuity: Policies are more permanent than the individuals who are employed and later leave for greener pastures or are sacked. Policy seeks to provide an enduring foundation for continuity.
- System regulation: They help to facilitate expansion and integration of new businesses into the company so that when growth occurs, there is already a firm foundation policy to apply in the new situation.
- Sets standard for performance: They provide a yardstick with which to measure progress in the organisation. For example, policy on issue of stock items-stipulating that no condition on which stock should be issued on verbal instruction. This may not be achievable instantly, but it sets a standard against which progress can be measured as the policy is implemented.
- Stimulate action: They stimulate action, because managers and supervisors have the knowledge and confidence to make decisions and take actions knowing fully well that they are following the laid down policies.
- Saves management time: Policies also save management time because the information is available and the procedures for carrying them out are known. This of course, assumes that the policies are made freely available to those who require them.
Uses of Policies for Management Effectiveness
The importance of policy to every organisation should not be under emphasised as they are used to establish stable institution, create identity, shape planning and boost the organisation’s image and acceptability by the public. Adeleke, et al (2005) itemised the various uses of policies as follows:
- Policies are used in preventing deviation from planned course of action by providing definite guide to follow. They provide the ommunication channels between organisational units thus facilitating the delegation process.
- Policies provide a conceptual framework within which other plans can be established to form a balanced and coordinated structure of plans. Since they serve as guide to further action, the existing policies relieve managers of the necessity to ask superiors for permission to do or not to do certain things. As long as managers are conforming to the organisation’s policies, they can safely proceed and use their own initiatives.
- Through policies, closer coordination and cooperation can be promoted among the organisation elements. Closer coordination and easier delegation will permit a greater degree of decentralisation within the organisation.
- Employees are more likely to take action and voluntarily assume greater responsibility when they are aware of organisational policies. If the personnel are confident that their actions are consistent with organisational policies, they are more likely to take actions than do nothing.
- Definiteness and flexibility are both desirable to goals attainment, but calculating the trade-off lies the problem. In certain cases, decisions are too trivial to require policy and at the other extreme, decisions may be too important to be ruled by policy; hence, in between these extremes, there is need for policies to save time and increase the speed of decision making
The concept of workers participation in management policy formulation has always been controversial. The principal perspectives in which workers participation in management policy may be seen as:
- workers participation is viewed as a means of advancing the interest of workers;
- workers’ participation is a way of distributing power within the enterprise more equally and in handling conflicts of interest by democratic procedure otherwise known as industrial democracy
III. by involving workers in policy formulation, this will bring about effective utilisation of the organisation available resources.
Management Policy Areas
Management policy areas are very extensive; some of the specified principal areas as identified by Akinyele et al (2017) are as discussed below:
Organisation: The organisation has to develop policies for itself. Such policies have to do with defining the appropriate departments, jobs, ranks within the organisation and interrelationships in line with the corporate objectives of the organisation.
Administration: Administrative policies of the organisation are formulated with a view to ensuring that there is effective leadership, direction and supervision at all levels and divisions of the organisation.
Unions: The policy statements are set out to maintain appropriate relationships between the organisation management and unions/labour movement. They also space out the procedure for negotiating conditions of service and settling of industrial disputes.
Training and development: This category of policies are formulated to guide the top management in providing programmes designed to meet organisation needs, individual needs and career requirements of managers and employees.
Incentive: This involves developing policy for incentives to motivate employees and managers alike in order to ensure efficient performance.
Public relations: Policy guides in providing adequate and appropriate attention to public attitudes and their reactions to policies and practices of the organisation.
Political action: This policy expresses the position or attitude of the organisation on political issues and events. Policy statement in this regard may restrain employees from talking to the press on political issues or even discuss political matters within the organisation.
Control: Policies on control are essential in organisation because they facilitate and pave way for the attainment of organisational goals by maintaining appropriate standards of tasks, personal and group performance.
Hierarchy of Business Organisation Strategy
Strategies and business policies underscore the fundamentals of the decision-making in organisations. Considering the long term directions and policies of organisation as a matter of fact, there are three levels of decisions taken by managers within a business organisation.
Business organisation strategy levels can be viewed from long term, medium term and operational decisions (for day to day activities). Robbert, Anthony (1988) identified these levels of management activity as:
- Strategic level or Corporate level
- Tactical level or Business level
- Operational level or Technical level
Anthony described these three levels as a hierarchy, with the strategic or corperate level at the top and the operational or technical level at the bottom.
Corporate strategy
Concerned with the broader issues, such as “why is the entity in existence?” Its mission and what it is set to achieve. These considerations will be influenced by the expectations of the shareholders (owners) and other stakeholders. Should it engage in either one product or multi products?
Matching the chosen business activities and available resources with the external environment is paramount here. For an organisation system that has sub-systems, these sub-systems must not be considered in isolation but must be made to interrelate under corporate strategy. The key players at corporate level are board of directors and top management.
Business strategy
How should we compete in each selected business? Focus here is how strategic business units (SBUS) use available resources to compete successfully in individual markets. The concern is to make each SBU to contribute towards the achievement of the corporate strategy.
Factors including threats from potential entrants, bargaining power of suppliers and customers, competition among existing firms and pressure from substitute products will impact the success of the firm. According to Porter (1985), competitive strategy must be based on cost leadership (lowest cost producer in the market) and product differentiation (offering product different from that of the competitors in the market).
Operational strategy
How can each business function contribute to the competitive advantage of the entity? It is concerned with how different functional departments such as finance, manufacturing, marketing, distribution, IT, research and development etc. of the organisation can contribute to the success of the business strategy and the corporate strategy of the organisation.