Nature & Importance of Business Policy

As already observed, 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.

It originates from the top management for the express purpose of guiding themselves and their
subordinates to make use of their operational tools as effectively as possible. It also enables to
set objectives for the whole organization in general and for the various functional areas in
particular.

It is the corporate policy that creates a sense of mission and purpose in the executive value
judgment, and in their managerial operations, because a direct and purposeful preparation to face
the challenges, opportunities and threats of the day-to-day business activities, is provided by the
business policy from time to time.

According to Edmund, the associates’ business policy is concerned with the top
management function of:

1. Shaping high-level, long-range corporate objectives and strategic that will be matched, to
both company capacities and to external realities in a world marked by rapid
technological, economical, social and political change.
2. Casting up an effective well-matched set of general policies for the pursuit of that
strategy.
3. Guiding the organization in accordance with that strategy.

The mission of the top management is influenced by the policy at various levels and phases.
They are:

1. Perception of industry and economic trends that affect the prospects of the economy.
2. Clearly understanding the needs, opportunities, threats, strengths, weakness and
problems.
3. Selecting the best opportunity or opportunities from an array of them, this can cope with
the capacity of the company.
4. Formulating of a strategy taking into account the opportunity and availability of
resources.
5. Development of operating plans for the pursuit of the chosen strategy and policies.
6. Creation of organizational relationships, organizational climate, and an atmosphere for
the proper implementation of policy.
7. Evaluating the performance and the progress, and
8. Periodic re-evaluation of positions in the light of developments within the organization
and its environment.
To sum up it can observe that the overall performance of the company depends on the pragmatic
policies, and the top management is mainly responsible for the policy formulation.

Business policies cover such a wide variety of subjects and are so broad-based that every
possible matter that affects the interests of any one in the organization, the community and the
government are included in them.

In fact, business policies cover all the functional areas of business- production, marketing,
personnel and finance. These functional areas are generally covered by the term as “major
policies” and “minor policies”.

Parameters of Policy:

There are certain parameters for business policy, they are:

1. Policy should be identifiable and clear, either in words or in practice.

2. Objectives of the policy should be fully identified and well defined.
3. Policy should not be conflicting with other functional and divisional policies of the
company.
4. The policy should be capable enough to fully exploit the opportunities.
5. Policy should be characterized by fairness and honesty with organizational philosophy,
objectives, goals and strategy.
6. Policy should be appropriate to the desired level of contribution to society.
7. Policy should be acceptable to all concerned; i.e., it should be appropriate to the personal
values and aspirations of the key managers.
8. Policy should constitute a clear stimulus to organizational effort and commitment.
9. Policy should always be realistic.

Features of Business Policy

An effective business policy must have following features-

1. Specific: Policy should be specific/definite. If it is uncertain, then the implementation

will become difficult.
2. Clear: Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform: Policy must be uniform enough so that it can be efficiently followed
by the subordinates.
4. Appropriate: Policy should be appropriate to the present organizational goal.
5. Simple: A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive: In order to have a wide scope, a policy must be
comprehensive.
7. Flexible: Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
 8. Stable: Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.

Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term “strategy”.
The difference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature.

While strategy is concerned with those organizational decisions which have not been
dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy formulation
is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly
with action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.

Importance of Business Policy Plans

Business policies are important and affect everything from legal liabilities to employee
satisfaction and a positive public image. Policies make sure everyone is on the same page when
it comes to expectations of certain things. A business might have policies pertinent to different
aspects of the company. There may be safety policies, human resources hiring policies and anti-
discrimination policies. There may also be policies that pertain to employees’ dress code, lunch
schedules, time off and holidays. Other policies are relevant to the customer experience
including greeting customers, phone call management and product delivery specifics.

All of these policies create a positive work environment. Employees who feel safe at work from
injury or discrimination are happier and more productive. This is an important aspect of
productivity that every business owner must consider. When employees have specific directives
on dress code, scheduling and requesting time off, it levels the field and shields employees from
favoritism. It sets the tone of the office dynamic and the foundation for teamwork. Simply
organizing schedules requires working as a team, or at least considering others on the team.

When it comes to policies on operations and the customer experience, this is imperative to
consistent operations and being able to troubleshoot potential problems. If the policy is to follow
up after a product is delivered, and that doesn’t happen, managers can target that segment of the
process to higher returns.

Establishing a Corporate Culture

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.

Of course, policies mean nothing if management is not going to implement the policies. Some
policies, such as safety and discrimination, have legal ramifications, and directly affect
productivity and customer satisfaction. If a manager isn’t going to require that employees adhere
to the policy of a six-month review after purchase, then the company might lose business and the
manager will find it harder to start the enforcement policy.

For example, Google has a corporate culture that is very employee-driven, meaning that parents
can adjust schedules around child-care hours; dog owners can bring Fido to work, and employees
are allowed to spend part of their time on personal projects they’d like to develop, not only on
what project was assigned. This is a lot of flexibility that’s outlined with very clear parameters
by the company, so that employees know where the boundaries are. As a result, Google is a place
where people like to work, and this policy has resulted in Google becoming a global leader in
technology.

Employee Business Policy Training

Business leaders must train employees on business policy. Every employee should receive an
employee handbook outlining all policies in one central document. Updates should be
disseminated in writing as amendments to the handbook. Should the handbook become outdated,
it should be revised so the newly implemented changes are integrated into the employee
handbook.

Employers should also keep the handbook accessible via the cloud or online portals so
employees are able to access it if there is a question. Additionally, by having it online, there is no
excuse for any employee to say they didn’t know.

But this isn’t enough. Employers should hold training sessions to review key policies. Many
businesses are holding inclusivity training, helping employees better understand what type of
language or actions could be perceived as harassment or discrimination. Don’t assume
employees know right from wrong. Train them to understand it. This helps keep the business and
the employee out of legal trouble.

The same is true when it comes to operations. If you need employees to follow a specific script
on the phone, the review it with them and role play. This holds true for personal interactions as
well. Don’t just review sales processes. Take the time to review potential customer service issues
so that employees are better trained to address potential problems during the day. The more an
employee can deal with customer problems, the less is redirected up the chain of command to
leadership. That frees up business leaders to focus on growth and development strategies.

Violations of Business Policy

It is important to be consistent with any business policy. Even something as simple as “every off-
site worker will have the shirt tucked in” requires management. As already discussed, you can’t
pick and choose when to implement a policy. This creates confusion and animosity among
employees who don’t know what version of the boss will be coming in on any given day.

If a business policy is implemented and consistently managed, then you need to hold employees
accountable for violations. There should be a process or protocol for management to follow that
is appropriate for the action. This helps you document what is going on with employees and
determine if anyone employee needs to be released.

For example, if the policy is for all men to wear a tie and for all women to wear pantyhose, the
process for violation might be a verbal warning followed by a write-up in the employee’s file.
Repeat violations would result in a further disciplinary action such as probation or even
suspension. On the other hand, if the policy is that a hard hat must be worn on site at all times, a
violation becomes a safety issue and requires immediate action, including being written up and
removed from the site.

Policies revolving around legalities such as harassment and discrimination should require
involving legal experts, law enforcement if necessary and performing an investigation to
determine the truth. Individuals may be separated and job duties may be adjusted pending the
investigation but firing rarely is appropriate prior to an investigation’s conclusion.

Importance of Your Business Policy

The policies and methods of implementation you choose as a business leader to adopt will
directly affect how your employees perform. Some business leaders don’t want to have
everything in a rigid format while others like to implement specific processes at every stage of
the company operational process. This is a business owner’s decision.

Keep in mind that some policies and procedures are designed to prevent legal issues while others
are designed to build a company image, experience and culture. A business leader should be
aware of how policies are affecting his team. If a dress code is becoming a problem for the
majority of employees, a new policy such as a casual Friday policy could change the office
dynamic in a positive direction. If no cell phone policy exists but employees are spending hours
on personal calls, texts and social media then a new policy with training should be implemented
and managed to improve productivity. Managers should regularly evaluate company policies and
their effectiveness to the business’ success.

Building Business Policies

Establishing policies generally starts with a business owner or his initial leadership team writing
an employee handbook and business plan with mission and vision. The team must consider what
are standard policies regulated by federal and state regulations. Some regulated policies include
privacy policies, anti-discrimination rules, overtime and holiday pay and even healthcare
programs.
Most businesses will find these regulated rules are similar among many companies though some
companies decided to go beyond the required policies. Then there are the operations and cultural
policies. These include the image that leaders want the company to have and the internal
corporate culture they are working to establish. Everything from dress code to smoking at work
might be defined by a business policy.

Once the main policies are created, business leaders must keep a pulse on how employees and
customers respond to the policies. If a policy is having a negative impact on the overall
productivity of the company, feedback must be sought and adjustments considered. Every
business leader must have this as his own policy for success. Businesses are fluid entities that are
always changing. Being too rigid can result in negative performance and negative results.
Troubleshooting production problems sometimes start with troubleshooting business policies.

…………………………………………………..

Development of Business Policy

The development of business policy is a comprehensive process that involves the formulation,
implementation, and evaluation of guidelines and principles to guide organizational behavior and
decision-making. This process is crucial for defining the strategic direction, structure, and
operations of an organization, and it requires careful consideration of internal and external
factors that influence business operations.

1. Understanding the Business Environment:

The first step in developing business policy is to understand the internal and external
environment in which the organization operates. This includes analyzing factors such as market
dynamics, industry trends, competitive landscape, regulatory requirements, technological
advancements, and socio-economic factors. By gaining insights into these factors, organizations
can identify opportunities and threats and assess their capabilities and resources to formulate
effective policies.

2. Defining Organizational Objectives:

Once the business environment is analyzed, the next step is to define the organization’s
objectives and goals. These objectives provide the overarching framework for business policy
development and guide decision-making processes. Objectives may include achieving revenue
targets, market expansion, cost reduction, innovation, customer satisfaction, sustainability, and
corporate social responsibility (CSR) goals. Clear and measurable objectives help align policies
with strategic priorities and ensure accountability for achieving desired outcomes.

3. Formulating Business Policies:

Business policy formulation involves translating organizational objectives into specific
guidelines, principles, rules, and procedures that govern various aspects of organizational
operations. This includes strategic policies related to corporate strategy, competitive positioning,
market entry, and growth strategies, as well as functional policies covering areas such as
marketing, finance, operations, human resources, and information technology. Policies are
typically developed through a collaborative process involving top management, functional
leaders, subject matter experts, and key stakeholders to ensure alignment with strategic goals and
practical feasibility.

4. Assessing Policy Alternatives:

During the policy formulation process, organizations may evaluate multiple policy alternatives to
address different scenarios and contingencies. This involves analyzing the potential benefits,
risks, costs, and trade-offs associated with each alternative and selecting the most suitable option
based on strategic alignment, resource availability, and organizational capabilities. Decision-
making tools such as cost-benefit analysis, SWOT analysis, scenario planning, and risk
assessment techniques may be used to evaluate policy alternatives and inform decision-making.

5. Establishing Policy Implementation Mechanisms:

Once policies are formulated, organizations need to establish mechanisms for implementing and
enforcing them effectively. This includes defining roles and responsibilities, establishing clear
communication channels, providing necessary resources and support, and developing monitoring
and control systems to ensure compliance with policies. Training and development programs
may also be implemented to build awareness and capacity among employees to understand and
adhere to organizational policies.

6. Communicating Policies:

Effective communication is essential for ensuring that policies are understood, accepted, and
adhered to by all stakeholders within the organization. Organizations need to develop
communication strategies to disseminate policies, clarify expectations, address concerns, and
solicit feedback from employees, managers, and other relevant stakeholders. Communication
channels may include employee handbooks, policy manuals, training sessions, workshops,
intranet portals, and regular updates from senior management.

7. Monitoring and Evaluation:

Once policies are implemented, organizations need to monitor their effectiveness and evaluate
their impact on organizational performance and outcomes. This involves collecting and
analyzing relevant data and metrics to assess whether policies are achieving their intended
objectives, identifying areas for improvement or adjustment, and making necessary revisions to
enhance policy effectiveness. Continuous monitoring and evaluation help organizations adapt to
changing circumstances, address emerging issues, and maintain policy relevance and alignment
with strategic goals.
 8. Reviewing and Updating Policies:

Business policy development is an ongoing process that requires periodic review and updating to
ensure that policies remain relevant, responsive to changing needs, and aligned with evolving
business objectives and external factors. Organizations should establish a regular review cycle to
assess the effectiveness of existing policies, identify gaps or deficiencies, incorporate lessons
learned from experience, and revise policies as needed to reflect new priorities, best practices,
and emerging trends.

9. Adapting to Change:

In today’s dynamic business environment, organizations need to be agile and adaptable to

respond to evolving market conditions, technological disruptions, regulatory changes, and other
external forces. Business policy development should incorporate flexibility and resilience to
enable organizations to anticipate and adapt to change effectively. This may involve scenario
planning, contingency planning, and risk management strategies to mitigate potential disruptions
and seize new opportunities.

10. Cultivating a Policy-oriented Culture:

Lastly, organizations need to cultivate a policy-oriented culture that values integrity,

accountability, transparency, and compliance with established policies and procedures. This
involves fostering a sense of ownership and responsibility among employees for adhering to
policies, recognizing and rewarding adherence to policies, and promoting open communication
channels for addressing policy-related issues or concerns. A strong policy-oriented culture helps
create a conducive environment for effective policy implementation and organizational
performance.

Pre-requisites in Development of Business Policy:

 Clear Organizational Objectives:

Before developing business policies, organizations must have clear and well-defined objectives
that provide direction and purpose. These objectives should be aligned with the organization’s
mission, vision, and strategic priorities. Clear objectives serve as the foundation for policy
development and help ensure that policies are consistent with overarching organizational goals.

 Comprehensive Environmental Analysis:

Organizations need to conduct a thorough analysis of the internal and external business
environment to understand the opportunities, threats, strengths, and weaknesses that may
influence policy development. This analysis includes assessing market dynamics, industry
trends, competitive landscape, regulatory requirements, technological advancements, and socio-
economic factors. Insights from environmental analysis inform policy decisions and ensure
alignment with the prevailing business context.
  Stakeholder Engagement:

Effective policy development requires active engagement and collaboration with key
stakeholders, including senior management, functional leaders, employees, customers, suppliers,
regulators, and other relevant parties. Stakeholder input provides diverse perspectives, insights,
and expertise that enrich policy formulation and enhance stakeholder buy-in and support for
policy implementation.

 Strategic Planning:

Business policy development should be closely integrated with strategic planning processes to
ensure alignment with the organization’s long-term goals and objectives. Policies should reflect
the strategic priorities identified through the strategic planning process and support the execution
of strategic initiatives. Integrating policy development with strategic planning fosters coherence,
consistency, and synergy in organizational decision-making and actions.

 Legal and Regulatory Compliance:

Organizations must ensure that business policies comply with applicable laws, regulations, and
industry standards governing their operations. This requires a thorough understanding of relevant
legal and regulatory requirements and proactive efforts to incorporate compliance considerations
into policy development. Legal and compliance experts may be consulted to ensure that policies
are legally sound and mitigate legal risks.

 Resource Availability:

Developing and implementing business policies require adequate resources, including financial,
human, and technological resources. Organizations need to assess resource availability and
allocation to support policy development activities effectively. Resource constraints may impact
the scope, timing, and feasibility of policy initiatives, necessitating prioritization and resource
optimization strategies.

 Risk Management Framework:

Organizations should have a robust risk management framework in place to identify, assess,
mitigate, and monitor risks associated with policy development and implementation. This
includes identifying potential risks and uncertainties that may affect policy outcomes, developing
risk mitigation strategies, and establishing mechanisms for monitoring and managing risks
throughout the policy lifecycle.

 Communication and Change Management:

Effective communication and change management strategies are essential for ensuring that
policies are understood, accepted, and adopted by stakeholders within the organization.
Organizations need to develop communication plans to disseminate policies, clarify expectations,
address concerns, and solicit feedback from employees and other stakeholders. Change
management techniques may be employed to manage resistance to policy changes and facilitate
smooth transitions.

……………………….

Classification of Business Policy

Business Policy refers to a set of guidelines, principles, and rules established by an organization
to govern its operations and decision-making processes. It provides a framework for aligning
actions with strategic objectives, ensuring consistency, coherence, and accountability across the
organization. Business policies encompass various areas such as strategic management,
operational practices, compliance, and risk management. By defining the rules of engagement
and providing direction for behavior, business policy facilitates effective decision-making,
promotes organizational efficiency, and supports the achievement of long-term goals and
objectives.

Business policies can be classified into various categories based on different criteria.

Strategic Policies vs. Operational Policies:

 Strategic Policies:

These policies focus on defining the overall direction, goals, and long-term objectives of the
organization. They guide strategic decision-making and resource allocation to achieve
competitive advantage and sustainable growth.

 Operational Policies:

Operational policies are concerned with day-to-day operations and management practices within
the organization. They provide guidelines and procedures for executing specific tasks, processes,
and activities to ensure efficiency, consistency, and quality in operations.

General Policies vs. Specific Policies:

 General Policies:

General policies are broad in scope and apply to the entire organization or large segments of it.
They establish fundamental principles, values, and guidelines that govern organizational
behavior and decision-making across various functions and levels.

 Specific Policies:
Specific policies are narrow in scope and address particular issues, situations, or areas within the
organization. They provide detailed guidelines and procedures for handling specific tasks,
activities, or situations, such as procurement policies, safety policies, or employee leave policies.

Internal Policies vs. External Policies:

 Internal Policies:

Internal policies are developed and enforced within the organization to govern internal
operations, processes, and interactions among employees and departments. Examples include HR
policies, IT policies, and financial policies.

 External Policies:

External policies refer to rules, regulations, and standards imposed by external entities, such as
government agencies, regulatory bodies, industry associations, or contractual agreements.
Compliance with external policies is essential to ensure legal and regulatory compliance and
maintain good relationships with external stakeholders.

Prescriptive Policies vs. Descriptive Policies:

 Prescriptive Policies:

Prescriptive policies prescribe specific actions, behaviors, or outcomes that employees are
expected to follow or achieve. They provide clear guidelines and directives for decision-making
and performance expectations.

 Descriptive Policies:

Descriptive policies describe existing practices, norms, or conditions within the organization
without necessarily prescribing specific actions or outcomes. They provide information about
how things are done rather than dictating how they should be done.

Directive Policies vs. Enabling Policies:

 Directive Policies:

Directive policies are mandatory and directive in nature, specifying required actions or
prohibiting certain behaviors. They establish rules, standards, and expectations that employees
must adhere to.

 Enabling Policies:

Enabling policies are permissive and flexible, allowing employees to exercise discretion and
judgment in decision-making within specified boundaries. They empower employees to make
informed decisions and take initiative to achieve organizational goals.
Procedural Policies vs. Substantive Policies:

 Procedural Policies:

Procedural policies define the step-by-step procedures, methods, and protocols for carrying out
specific tasks or processes within the organization. They ensure consistency, efficiency, and
compliance with established procedures.

 Substantive Policies:

Substantive policies define the substance or content of decisions, actions, or outcomes, focusing
on the underlying principles, values, and objectives to be achieved. They provide guidance on
the substance of decisions rather than the procedures for making them.

………………………………

Business Mechanism or Policy Making

Business Mechanism

Business Mechanisms refer to the processes, systems, and structures that organizations utilize to
execute various functions and achieve their objectives. These mechanisms encompass everything
from operational workflows and supply chain management to financial systems and customer
relationship management.

Decision-making within the context of business mechanisms involves the process of analyzing
data, evaluating alternatives, and selecting courses of action to address specific challenges or
opportunities. Effective decision-making mechanisms are essential for ensuring that
organizations can adapt to changing environments, capitalize on opportunities, and mitigate risks
while aligning actions with strategic objectives.

Characteristics of Business Mechanism:

Business mechanisms are essential components that enable organizations to function effectively
and efficiently. They encompass various processes, systems, and structures that facilitate
operations and strategic initiatives.

 Systematic and Structured:

Business mechanisms are organized in a systematic and structured manner, providing clear
procedures and guidelines for carrying out specific tasks and activities. This ensures consistency
and reliability in operations.
  Efficiency-Oriented:

Designed to optimize resource utilization, business mechanisms aim to enhance efficiency in

processes and workflows. They streamline operations, reduce redundancies, and improve
productivity, contributing to cost savings and better resource management.

 Adaptability:

Effective business mechanisms are adaptable and flexible, allowing organizations to respond to
changes in the internal and external environment. This includes adjusting to market dynamics,
technological advancements, regulatory changes, and evolving customer needs.

 Goal Alignment:

Business mechanisms are aligned with the organization’s strategic objectives and goals. They
support the execution of strategic plans and ensure that all activities contribute towards achieving
the desired outcomes and overall mission.

 Scalability:

Scalable business mechanisms can grow and expand with the organization. They are designed to
handle increased volumes, complexity, and scope, allowing the organization to scale operations
without compromising efficiency or quality.

 Compliance and Risk Management:

Business mechanisms incorporate compliance with legal and regulatory requirements and
include risk management practices. They help identify, assess, and mitigate risks, ensuring the
organization operates within acceptable levels of risk and adheres to relevant laws and standards.

 Integration:

Business mechanisms are integrated across various functions and departments within the
organization. This integration ensures coherence and coordination, enabling different parts of the
organization to work together seamlessly towards common goals.

 Performance Measurement:

Effective business mechanisms include performance measurement and monitoring systems. They
establish key performance indicators (KPIs) and metrics to assess the effectiveness, efficiency,
and impact of processes and activities, facilitating continuous improvement and informed
decision-making.

Components of Business Mechanism:

 Processes and Workflows:

Defined sequences of activities and tasks that are structured to achieve specific outcomes.
Standard operating procedures (SOPs) that ensure consistency and efficiency in operations.

 Organizational Structure:

The hierarchy and arrangement of roles, responsibilities, and authority within the organization.
Clear delineation of departments, teams, and reporting relationships to facilitate coordination and
communication.

 Technology and Information Systems:

Software, hardware, and digital tools that support business operations and decision-making.
Enterprise Resource Planning (ERP) systems, Customer Relationship Management (CRM)
systems, and other specialized applications.

 Policies and Procedures:

Formal guidelines and rules that govern behavior and decision-making within the organization.
Compliance with legal and regulatory requirements, ethical standards, and internal governance.

 Performance Measurement and Metrics:

Key performance indicators (KPIs) and metrics that monitor and evaluate the effectiveness and
efficiency of processes. Tools and dashboards for tracking performance, identifying issues, and
informing decision-making.

 Resource Management:

Allocation and optimization of financial, human, and material resources to support business
activities. Budgeting, staffing, procurement, and inventory management processes.

 Communication and Information Flow:

Mechanisms for effective internal and external communication, including meetings, reports, and
digital communication tools. Channels for disseminating information, sharing knowledge, and
facilitating collaboration.

 Control and Governance:

Internal controls and audit mechanisms to ensure compliance, accuracy, and reliability in
operations. Governance structures, including boards and committees, that oversee and guide
organizational activities.

 Risk Management:
Processes for identifying, assessing, mitigating, and monitoring risks associated with business
activities. Contingency planning and crisis management protocols to handle unexpected events
and disruptions.

 Innovation and Improvement:

Mechanisms for fostering innovation, continuous improvement, and adaptation to changing

environments. Research and development (R&D), feedback loops, and process reengineering
initiatives.

Business Policy Making

Business Policy Making refers to the process of developing guidelines, principles, and rules that
govern an organization’s operations and decision-making. This process involves identifying the
strategic goals and objectives of the organization, analyzing internal and external environments,
and formulating policies that align with these goals. Effective business policy making ensures
consistency, compliance, and coherence in actions across different departments and levels of the
organization. It also involves engaging stakeholders, evaluating policy alternatives, and
implementing mechanisms for monitoring and reviewing policies. By establishing clear and
actionable policies, organizations can navigate complexities, manage risks, and achieve long-
term sustainability and success.

Characteristics of Business Policy Making:

Business policy making is a critical process that shapes the direction and operations of an
organization.

1. Strategic Alignment:

Policies are designed to align with the organization’s mission, vision, and long-term strategic
goals. This ensures that all actions and decisions support the overall direction and objectives of
the organization.

2. Comprehensive Analysis:

The process involves thorough analysis of both internal and external environments, including
market trends, competitive landscape, regulatory requirements, and internal capabilities. This
analysis informs the development of relevant and effective policies.

3. Stakeholder Involvement:

Effective policy making engages various stakeholders, including employees, managers,

customers, suppliers, and regulators. Their input and feedback ensure that policies are practical,
accepted, and beneficial to the organization.

4. Clarity and Consistency:

Policies are clearly written and communicated to ensure that all members of the organization
understand the guidelines and expectations. Consistency in policies across different areas helps
in maintaining coherence and reducing ambiguity.

5. Flexibility and Adaptability:

While providing clear guidelines, policies are also designed to be flexible enough to adapt to
changing circumstances, market dynamics, and emerging challenges. This adaptability ensures
that the organization can remain responsive and resilient.

6. Compliance and Ethics:

Policies incorporate legal and regulatory requirements and promote ethical standards and
practices. This ensures that the organization operates within the bounds of the law and maintains
its reputation and integrity.

7. Monitoring and Evaluation:

Ongoing monitoring and evaluation mechanisms are established to assess the effectiveness and
impact of policies. This helps in identifying areas for improvement and making necessary
adjustments to enhance policy performance.

8. Resource Allocation:

Policies are developed with consideration of available resources, including financial, human, and
technological resources. Effective policy making ensures that resources are allocated efficiently
to support policy implementation and organizational goals.

Steps of Business Policy making:

Developing effective business policies involves a systematic process to ensure that policies align
with organizational goals and are practical, compliant, and well-received by stakeholders.

1. Identify the Need for Policy:

Recognize and articulate the need for a new policy or the revision of an existing one. This may
arise from changes in the external environment, internal issues, regulatory requirements, or
strategic shifts.

2. Conduct a Situation Analysis:

Perform a thorough analysis of the internal and external environments. This includes assessing
current policies, understanding organizational strengths and weaknesses, analyzing market
trends, competitive landscape, and regulatory frameworks.

3. Engage Stakeholders:
Involve key stakeholders in the policy-making process. Gather input and feedback from
employees, managers, customers, suppliers, and other relevant parties to ensure that the policy
addresses their needs and concerns.

4. Define Policy Objectives:

Clearly define the objectives that the policy aims to achieve. These objectives should be specific,
measurable, attainable, relevant, and time-bound (SMART).

5. Develop Policy Alternatives:

Formulate multiple policy alternatives or options to address the identified need. Evaluate these
alternatives based on criteria such as feasibility, cost, impact, and alignment with organizational
goals.

6. Evaluate and Select the Best Policy:

Assess the potential benefits, risks, and trade-offs of each policy alternative. Use decision-
making tools such as cost-benefit analysis, SWOT analysis, and risk assessment to select the
most appropriate policy.

7. Draft the Policy Document:

Write a clear and detailed policy document. This should include the policy’s purpose, scope,
definitions, procedures, responsibilities, and compliance requirements. Ensure that the language
is precise and easily understood.

8. Review and Approve the Policy:

Circulate the draft policy among key stakeholders for review and feedback. Make necessary
revisions based on their input. Seek formal approval from senior management or the relevant
governing body.

9. Communicate the Policy:

Develop a communication plan to ensure that all relevant parties are informed about the new or
revised policy. Use various communication channels such as emails, meetings, training sessions,
and internal portals to disseminate the policy.

10. Implement the Policy:

Put the policy into action by establishing the necessary procedures, processes, and systems.
Provide training and resources to employees to ensure they understand and can effectively follow
the policy.

11. Monitor and Evaluate Policy Effectiveness:

Continuously monitor the implementation of the policy to ensure compliance and effectiveness.
Collect data and feedback to assess whether the policy is achieving its objectives.

12. Review and Revise the Policy:

Periodically review the policy to ensure it remains relevant and effective. Make revisions as
needed based on changes in the internal and external environment, feedback from stakeholders,
and lessons learned from implementation.

Key differences between Business Mechanism and Policy making

Aspect Business Mechanism Policy Making

Definition Processes and systems Guideline development
Purpose Execute operations Guide decisions
Scope Broad operational Specific directives
Focus Efficiency and structure Compliance and strategy
Involvement Cross-functional roles Leadership and stakeholders
Flexibility Adaptable processes Fixed but revisable
Implementation Continuous operation Periodic introduction
Monitoring Ongoing performance Periodic evaluation
Resource Use Operational resources Strategic resources
Decision-Making Day-to-day basis Strategic planning
Impact Operational effectiveness Organizational direction
Examples Workflow systems HR policies, compliance rules
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