June 20, 2012

MB0052 [Strategic Management and Business Policy] Set2 Q1

Q.1 Explain with respect to policies – steps in framing business policy and stages of policy cycle. Will these help in decision making?

Ans:

Policy formulation is the process of designing the policy. The major function of designing the policy relies upon the managers. Policy framing is one of the phases of strategic planning in the organisation. It is based on the underlying objectives of the organisation. Framing and monitoring the policy is one of the critical tasks in the organisation.

Policy is a proposed or adopted course or principle of action.



The idea of policy formulation suggests several images. The literature typically features one or the other, rarely both simultaneously. The technically minded see this as an act of correct analysis, finding the optimal solution to a complicated problem. The politically minded see it as gaining support for a policy through the cumbersome legislative process. The former casts policy formulation in terms of rationality; the latter in terms of compromise and majority-building.

Policy formulation is the development of effective and acceptable courses of action for addressing what has been placed on the policy agenda. 

Notice that there are two parts to this definition of policy formulation: 
  1. Effective formulation means that the policy proposed is regarded as a valid, efficient, and implementable solution to the issue at hand. If the policy is seen as ineffective or unworkable in practice, there is no legitimate reason to propose it. Policy analysts try to identify effective alternatives. This is the analytical phase of policy formulation. 
  2. Acceptable formulation means that the proposed course of action is likely to be authorized by the legitimate decision makers, usually through majority-building in a bargaining process. That is, it must be politically feasible. If the policy is likely to be rejected by the decision making body, it may be impractical to suggest it. This is the political phase of policy formulation. 
There are, then, two aspects to policy formulation: the analytical and the political. First, effective policy alternatives, presumably based on sound analysis, must be conceived and clearly articulated. Second, a political choice among these alternatives must be made: The policy must be authorized through a political process, such as legislation or regulation.

The process of framing policies consists of the following steps:
Definition of purpose – The first step towards framing policies includes the process of identifying the objectives and the philosophy of the organisation. The purpose is to select the guidelines for measuring the performance based on the organisation’s strengths and weaknesses, its available resources and the personnel. The basic concept of the business activities is defined in this phase.

Example – The perception of the garment company is to develop the finest cloth at less cost. Adding to such a conceptual view, the company must define the purpose in terms of guidelines needed for measuring the performance and obtaining the desired targets.

Preparation of strategic intelligence – This step involves analysing the internal environment of the organisation. The strategic intelligence is the process of detailed description of what the company is and assessing its sphere of operations. The prediction of the future happenings including the opportunities and risks must be known because it lays heavy impact on the company’s position in the market.

Policy alternatives – Alternating policies must be identified and analysed once the objectives of the organisation are defined. The managers recognise the problems faced by the organisation and discover the alternative policies. This step is the central phase of framing a policy. A list of policy alternatives is generated by considering the probabilities of the problems faced by the organisation.

Example – Inventory systems in Das n Das Company
The Das n Das Company invested on control systems to avoid taking decisions on the routine matter regarding the orders, timings of production, etc. In such a situation, many factors are considered by the top level management to increase the production rate and the size of orders. Hence meetings are held to discuss the implementation of the policy that suits the best.

The top level management introduced an alternative to the inventory control policy that consisted of determination and evaluation of various conflicting factors. The policy is adopted to represent a balance between the internal factors like employees, resources and the production.

Policy analysis – This step involves analysing the alternative policies and examining its contribution towards the objectives of the organisation. An alternative policy is based on the consequences to be faced by the organisation. The elements of policy analysis process include evaluating the consequences of various alternatives and their effects on the objectives of the organisation.

Strategic choice – It is the process of selecting the policies that is best suited for the organisation. This is done by the top level management. The policies act as guidelines to fulfill the organisation’s purpose. Establishing the specific policies represents the strategic commitment towards achieving the objective of organisation.

Policy review – Policy review is the process to evaluate whether the framed policy is matching the organisational performance. A periodical review of policies is necessary to maintain the policies up to date.

This section explained the various steps involved in framing business policies. The next section defines policy cycle and describes the stages of policy cycle.
Policy cycle is the process of analysing, planning, designing, and implementing the policies in the organisation. Every organisation typically has high and low level policies. The high level policies govern the entire company in all circumstances. They mainly deal with the organisation’s needs. It forms a standard and does not lend procedures. The low level policies deal with a set of specific circumstances. It helps in creating procedures to govern the organisation in specific situations.

These policies are necessary to govern the organisation. Hence it must be reviewed and reshaped as the objectives of the organisation changes. The policy cycle is necessary to implement this process.

Stages of policy cycle
The policy cycle consists of the following stages:


Setting the policy agenda
Policy agenda is the process of describing the sequence of business activities in the organisation and planning the measures to frame a policy. A list of factors is considered which includes processes, resources, revenue etc. The top level management organises committee meetings to discuss these factors and make a detailed planning for framing a policy.

Writing policy
It is the process of drafting the policy for the organisation. The policy is drafted based on the various factors discussed in the meetings. A separate team under framing business policies is responsible for writing policies. The policy statements must be clear, concise and easily implemented in the organisation. The policies are created in such a way that it does not lead to controversies. The drafted policies adhere to the organisations objectives.

Implementation of policy 
The implementation process is necessary to effectively communicate the drafted policies. This phase makes the policy visible to the employees in the organisation. An environment of compliance is achieved between the organisation norms and the employees only if the employees are aware of policies in the organisation. Generally, employees view the policies as restrictions. Hence, implementing the policies systematically reduces the negative perception of the employees.

Policy implementation tasks are:
Policy legitimating – The proposed policy must obtain authenticity from the team implementing the policy.
Constituency structure – The policy must be marketed in such a way that it promotes the relationship between the beneficiaries.
Resource allocation – The resources that are supporting the implementation of policy must be acquired or reallocated depending on the implementation of the strategy.
Organisational design and modification – The existing organisation must be re-engineered or modified according to the new policy.
Resource mobilisation – The resources in the organisation must be redirected to provide the capacity to conduct action as per the implemented policy.

Enforcing policy
Enforcing policy is the process of applying the drafted policies in situations that are in compliance between the organisation and the employees. The top level management has the clear responsibility for enforcing the policies. If the employees are found exploiting the policies then the organisation has powers to impose penalties to the employees. Hence enforcing policies develops responses to the problems faced in the organisation without hampering the organisation’s success.

Reviewing the policy
Reviewing the policies is the process of checking whether the policies are matching the business activities in the organisation. This phase includes re-examining the existing policies. All the policies must be reviewed on daily basis. If any errors are found that are not compatible to the organisation’s views then it is reverted to the policy drafting team to re-draft. Reviewing policies ensures that they reflect the business realities of the moment.

Updating policy
If any changes are made in the process of the business activities then the existing policies also must be changed. The review team holds the responsibilities of updating policies. If the policies are not updated then the organisation experiences issues with various factors in the organisation.

Evener any business policy is framed; it has to be observed by the decision makers as feasible and beneficial for the organisation’s growth and success. Just because a policy is in place, it doesn’t mean that it will help business decisions. Therefore, business policies have to be framed after a careful scrutiny and then decided whether such policies are needed or not. 

Once policies are in place and implemented, it should further help in functional and operational decisions without causing any ambiguities or delays in procedures. Policies should act as guiding light to lead the organisation and business strategies in the right path. 

A change in policy or amendments done to existing policies should also be considered in decision making before implementing them. Further, it should not cause any major disruptions in the internal environment.

Policy making decisions together with strategic decisions must provide clarity, flexibility and assistance to other business decisions.

Interdependence between policy and strategy
Business policies and business strategies requires compatibility. A policy should not hinder strategic decisions and in the same way, a strategy should not restrict policy decisions. Both have to be complementary to each other.

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