Business Policy

Introduction to Business, Strategy, Objectives and Policy

BUSINESS POLICY

Human occupations
Human life is built around work Work is an essential part of life

Professionals

Employment
Business
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Business
A commercial activity to make profit

URWICK
Earning the profits can not be the objective of a business than eating is the objective of living.

Henry Ford
Mere money-chasing is not business

Being busy
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What keeps us busy

Economic activities relating to

Production

Distribution, and / or

Service
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Characteristics of business
Production, Sale, Transfer or Exchange for satisfaction of human needs

Dealings in Goods and Services

Recurrence of transactions

Profit motive

Element of risk
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Risks in business
Change in technology Change in consumer tastes and fashions Wrong management decisions about use of capital and other resources Labor trouble Shortage of raw materials Increased competition and Fire, theft and natural causes ( cab be taken care off by insurance )

Business definition
Clarifies the nature of existing products, markets and functions the organization presently performs.
Who is being satisfied

Customer groups ( Individual customers, Individual users )

What is being satisfied Customer needs/functions

How need is being satisfied Alternative technologies

Products

(Manner in which a particular function can be performed for a customer , Processes to create and add value )
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Types of business Industry

Involves production of goods and materials

Commerce
Concerned mainly with their distribution
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Strategy
Different companies react differently to their environment and adopt course of action seemed appropriate to them, like expansion, diversification, focus, turn around, stability or divestment. They devise new things either to counter the threats or take advantage of new opportunities and change course of action. These courses of action are called STRATEGIES

Strategy ( Glueck )
A strategy is the means used to achieve the ends (objectives). A strategy is not just a plan, however A unified ( ties all the parts of the enterprise together ), comprehensive (covers all l major aspects of the enterprise) and integrated (all the parts of the plan are compatible with each other and fit together well ) plan that relates the strategic advantages of the organization to the challenges of the environment. it is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization. It is similar to the concept in sports of a game plan but game plan is not exactly a strategy. A game plan is oriented against one competitor and is only for one game , not a whole season
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A strategy for a firm is long run plan. A firm deals with a number of competitors simultaneously and with the Government, suppliers, owners, labor union ,and others. A strategy is oriented towards basic issues such as these

1.What is our business?

2. What should it be? 3. What are our products, functions and markets? 4. What can our firm do to accomplish objectives?
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Different levels of strategy

Many companies or a group of companies work in different business lines with respect to either products/services, markets or technology. For such companies, single strategy is not only inadequate but also inappropriate. Multiple strategies are needed at different levels.

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Example HPCL
Corporate (Strategy of expansion) Integration, Joint ventures, strategic alliances

(SBU) Lubes
(2 prong strategy)

LPG

Retail Industrial

1. Expansion of distribution from Petrol pump to Bazaar trade. 2. Activating R & D

SBU is an operating division of a firm, which serves a distinct Product- Market segment or a set of well defined customers or a geographic area. SBU is given the authority to make its own strategic decisions within corporate guidelines as long as it meets corporate objectives
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Policy
An answer to many questions confronting the organization about Product line, Pricing Purchasing

Wages etc

Guide to action
It indicates how resources are to be allocated and how tasks assigned to the organization might be accomplished so that functional level managers execute the strategy properly.
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Advantages of policy
1. Delegation of duties to subordinates ( With confidence that these will be carried out along the general lines that superior wishes, in accordance with the prevailing policies 2. Coordination becomes easier to be carried out 3. Consistency and uniformity of actions taken by different members of the organization are exhibited.

Policy is not a set of inflexible rules and so

should be reviewed and modified when necessary to fit new conditions in the industry.
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Objective and Policy

Goals denote what an organization hopes to
accomplish in a future period of time. They represent a future state or an outcome of the efforts put in now. A broad category of financial and non financial issues are addressed by goals that a firm sets for itself.

Objectives are the ends that state specifically

how a goal shall be achieved. They are concrete and specific in contrast to Goals which are generalized. Goals may be qualitative, objectives are mainly quantitative in specifications hence measurable and comparable.

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Policy
A general rule of action Provided guidelines which will facilitate the organization in achieving the targets e. g. Goal- To bring inventories down; ObjectiveTo bring inventories down, obsolete products should be disposed off Policy- Obsolete products could be disposed off at discounted price

Objectives serve as guides in determination of

policy in selecting resources and setting up programs.
They serve as useful standard when evaluating accomplishment of a business unit
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Relation of Objectives to Policies

1. A company may seek several different objectives at the same time

2. A single plan of action must be worked out which is likely to lead as near to the Goals as possible.
3. All Goals cant be achieved within a limited period of time 4. The policies established by an organization may have to be directed primarily towards one goal and only secondary towards others. 5. One of the purposes of business policy is to resolve the conflicts which may be there between the several objectives 6. They guide the action of the organization along a path leading towards the objectives which is feasible to be achieved in the prevailing economic and social conditions
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Objectives of business
Organic Objectives
Economic Objectives

Social Objectives
Human Objectives

National Objectives

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Organic Objectives
A business enterprise An organic entity having its own
Infancy Childhood/ youth Young adult /Adulthood Maturity Old age
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Organizational Objectives
Infancy

Strategic focus of an Organization

Define mission and Business definition and search environment Products, markets, and Functions Quantitative growth Increase market share Claim more territory Redefine products, markets, functions Reap rewards, mine markets for benefits

Childhood/ Youth Young adult/ Adult

Achieve uniqueness and establish niche Qualitative growth Gain reputation

Maturity

Stabilize and contribute Maintain position with to society stability Survival procreate and retrench parts that are no longer healthy

Old Age

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Economic Objectives
Profit Creation of customers Innovation

Social Objectives
Supply of desired quality of goods Avoidance of profiteering and anti social practices Providing employment

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Human Objectives
Fair deal to employees Human resource development Participation Job satisfaction

National Objectives
Ensuring social justice Development of small entrepreneurs Production according to national policies National self reliance and export development Development of skilled personnel

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Basic Objectives
( That shapes the character of a company ) 1. Stability or Dynamics What the company want to emphasize? 2. What place or niche does the company seek in the industry? 3. What is the social philosophy of the company ? 4. What is the management philosophy of the concern ?

Emphasis on Stability vs Dynamics

Progressiveness- the seeking of better ways Aggressiveness- drive in making changes Willingness- to take risks Willingness- to share ownership control
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Place the company seeks in the industry

Major functions to be performed Specialization vs. Diversification of activities We also make steel We only make steel Quality of price level sought Size of operations

Social philosophy of the company

Community relations Government and economic responsibilities Customer service Supplier contact Competitor contact Regard for employees
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Management philosophy of the company

Centralization vs. Decentralization of Decision making

Quality of Key personnel

Extent of advance planning and research going into plans Manner of Supervision- strictness of control

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BUSINESS POLICY
It is a capstone integrative course, which will give students an opportunity to pull together, what they have learnt in the separate business fields and utilize this knowledge in the analysis of complete business problems. Strategic management is the theoretical framework of Business Policy

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Evolution of Business policy

(Hofer) Four paradigm shifts

1. Ad hoc policy making ( Single product line, catering to a unique set of customers in a limited geographical area ) Anticipate future through preparation of budgets and use control systems like Capital Budgeting 2. Planned policy formulation (As expansion took place, need to integrate functional areas arose. This integration was brought about by framing policies to guide managerial action. Policy making became prime responsibility of senior management ) 3. Concept of strategy ( Critical look at the basic concept of business and its relationship to the environment )

4. Strategic management ( Strategic processes of business firms and responsibility of general management )

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Nature of Business Policy

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By Christensen and others

Business policy is the study of the functions and responsibilities of Senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organization and shape its future.
1. Study of functions and responsibilities of Senior Management, related to those organizational problems , which affect the total enterprise. 2. It deals with the determination of the future course of action that an organization has to adopt. 3. It involves a choosing the purpose and defining what needs to be done in order to mould the character and identity of an organization. 4. It is also concerned with the mobilization of resources, which will help the organization, to achieve its goals.
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Senior Management- Persons permanently responsible for long term decisions, CEO, President, Executive Director, Gen Manager

Future course of action- Lays down long term plan, which the organization then follows. Have mental picture of how they want the company to become in future.

Specific direction- Wide array of decisions and actions to choose from Resources- Financial, Material and Human

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Importance of Business Policy

For learning the Course 1. It sees to integrate the knowledge and experience gained in various functional areas of management. 2 It deals with constraints and complexities of real life business

3. It cuts across the narrow functional boundaries. 4. It makes the study and practice of management more meaningful

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For understanding business environment

1. It helps to create an understanding of how policies are formulated.

2. Managers become more receptive to ideas and suggestions of senior management. 3. Managers feel themselves a part of greater design, when they become capable of relating environmental changes to policy changes.

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For understanding the organization

1. It presents basic framework for understanding strategic decision making.

2. It brings the benefits of years of distilled experience in strategic decision making

3. It leads to an improvement in job performance

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For Personal development

Due to competition, suppose the focus changed from Production to marketing.

Beneficial for an executive to understand the impact of policy shifts on status of ones department and on position one occupies. (Redundant positions and retrenchments)

An opportunity to avoid a risk with regard to career planning and development. Provides an adequate grounding for understanding the macro factors and their impact at micro level (IT industry better than steel) Unique perspective to executives to understand the senior managements viewpoint

Theoretical framework provided in the form of strategic management model

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Purpose of Business Policy

1. To integrate knowledge gained in various functional areas of management. 2. To adopt a Generalist approach to problem solving

Generalist approach,View organizational problems in totality, Understanding the repercussions of actions in one area on other and organization as a whole. Marketing problem as an organizational problem, understanding the business as a system
3. To understand complex inter linkages operating within an organization through use of systems approach to decision making and relating these to the changes taking place in external environment. e.g Sales drop may be due to any- Competition, Quality, Distribution, Training , Recruitment
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Objectives of Business Policy

In terms of knowledge
1. Understand various concepts- Strategy, Policies, Plans and programs

2. Knowledge of external and internal environment

3. Information about environment helps in determination of mission, objectives and strategies 4. How to implement the strategy, the most complex and difficult part of strategic management 5. General approach to be adopted in problem solving and decision making 6. Survey the literature and learn about research in field of business policy 37

In terms of skills
1. Develop skills to be able to apply ( Case studies ) 2. Develop analytical abilities

3. Identify factors relevant to decision making, SWOT analysis, to suggest appropriate strategies and policies 4. Increase mental ability to enable link theory with practice
5. Case analysis leads to development of oral as well as written communication skills

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In terms of attitude

1. Inculcation of most important attitude as Generalist. Approach and assess the situation from all possible angles.
2. Ability to function even with partial or incomplete information. Use judgement and intuition . Act as a practitioner than a perfectionist.

3. Liberal attitude and be receptive to new ideas. Practical approach to decision making for problem solving.
4. Attitude to Go beyond and think in problematic situation. Developing Creative and Innovative attitude and not by precedents and stereo typed decision
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