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Business Policies


In the administration of business, one of the most important tasks is to formulate policy; the work of planning and the determination of company objectives become effective when expressed in policy form.

A policy is a guide to the action or decisions of people. Policies are directives, issued from a higher authority, and provide a continuous framework for the conduct of individuals in a business - they are in effect a type of planning. Policies are expressions of a company's official attitude towards types of behavior within which it will permit, or desire, employees to act. They express the means by which the company's agreed objectives are to be achieved and usually take the form of statements, telling members how they should act in specific circumstances. Policies reflect management thinking on basic matters and inform those interested in the activities of the company about the company's intentions regarding them.

Formulation of policy

Policy formulation may begin at any level of management and may flow upwards or downwards along the levels of organization. Policy usually is formed by;

-the board of directors and senior management, who determine the main policies;

-being passed up the chain of command until someone takes responsibility for making a decision;

-External influences, e.g. government legislation, may force a policy change.

Policy formulated by executive is usually on broad lines and subordinates have scope in applying it. Any policy should be as specific as possible.

Specific policies

It is not always easy to be specific; words must be carefully chosen and policies must be basically sound and well administered. It may be difficult to state policies that will cover all possibilities, and this therefore may tend to limit the range of the policies and therefore be unduly restrictive.

Advantages of specific policies;

-They are easy to refer to and absorb;

-Misunderstanding are fewer;

-New employees can easily be made aware of them in their induction;

-They are a good exercise for management, who must have thought about them seriously before writing them down.

Policies should be flexible and allow executives discretion in their application. They are more likely to be accepted if they are applied consistently and fairly.

Implied policies

If too much is implied in policies it can be dangerous. For example, if an organization does not employ union labor, it may be implied that this is the policy of the organization and this could cause it to suffer loss at a future date. Or, if all promotions were made in the past from within the organization, this would appear to be implied organizational policy. There would be great concern, therefore, if a new appointment were made from outside, as a change of policy would be assumed.

Examples of policy

Policies regarding functional areas will be shown in more detail in the following chapters, but a brief indication will be given now of some of the major types of policy:

-Product policy involves deciding upon the products to make and depends upon many factors, particularly upon market conditions. Such a policy in turn generates other policies, e.g. marketing, finance and research;

-Production policy deals with, for example; what proportions of plant should be devoted to flow or job or batch production? What items to make or to buy what use should be made of by-products;

-Market policy involves determining distribution channels, pricing structure of products, volume and type of advertising, credit policy, method of subdividing territory and remuneration of salesmen;

-Purchasing policy involves what organization buy and to what extent, and what are alternative sources of supply;

-Human resources policy involves methods of training, education, pension schemes, incentive plans, management succession and development, benefits, union relations.

All other functions need policies, but the above will serve to indicate the necessity for clear-cut policies in all sections of an enterprise.