Meaning/Importance of BUSINESS POLICY (Paper 2/11)

Meaning of BUSINESS POLICY

Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have the 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.

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 organization. It deals with the constraints of real-life business.

It is important to formulate policies to achieve the organizational 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 organized by business policies.

Business policies are important due to the following reasons:

• Coordination Reliable policies coordinate the purpose by focusing on organizational activities. This helps in ensuring uniformity of action throughout the organization. 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 synchronized with the objectives of the organization. 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 organization. Policies are derived objectives and provide the outline for procedures.
•  
• Decentralization. Well defined policies help in decentralization 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.