June 11, 2012

MB0052 [Strategic Management and Business Policy] Set1 Q6

Q6. Define the term “Business policy”. Explain its importance.


Ans:


Business Policies


Business policies are the instructions laid by an organisation to manage its activities. It identifies the range within which the subordinates can take decisions in an organisation. It authorises the lower level management to resolve their issues and take decisions without consulting the top level management repeatedly. The limits within which the decisions are made are well defined.


Business policy involves the acquirement of resources through which the organisational goals can be achieved. Business policy analyses roles and responsibilities of top level management and the decisions affecting the organisation in the long-run. It also deals with the major issues that affect the success of the organisation.

Importance of Business Policies

A company operates consistently, both internally and externally when the policies are established. Business policies should be set up before hiring the first employee in the organisation. It deals with the constraints of real-life business.
It is important to formulate policies to achieve the organisational objectives. The policies are articulated by the management. Policies serve as a guidance to administer activities that are repetitive in nature. It channels the thinking and action in decision making. It is a mechanism adopted by the top management to ensure that the activities are performed in the desired way. The complete process of management is organised by business policies.

Business policies are important due to the following reasons:

  • Coordination Reliable policies coordinate the purpose by focusing on organisational activities. This helps in ensuring uniformity of action throughout the organisation. Policies encourage cooperation and promote initiative.
  • Quick decisions Policies help subordinates to take prompt action and quick decisions. They demarcate the section within which decisions are to be taken. They help subordinates to take decisions with confidence without consulting their superiors every time. Every policy is a guide to activities that should be followed in a particular situation. It saves time by predicting frequent problems and providing ways to solve them.
  • Effective control Policies provide logical basis for assessing performance. They ensure that the activities are synchronised with the objectives of the organisation. It prevents divergence from the planned course of action. The management tends to deviate from the objective if policies are not defined precisely. This affects the overall efficiency of the organisation. Policies are derived objectives and provide the outline for procedures.
  • Decentralisation Well defined policies help in decentralisation as the executive roles and responsibility are clearly identified. Authority is delegated to the executives who refer the policies to work efficiently. The required managerial procedures can be derived from the given policies. Policies provide guidelines to the executives to help them in determining the suitable actions which are within the limits of the stated policies. Policies contribute in building coordination in larger organisations.

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