STRATEGIC MANAGEMENT AND

BUSINESS POLICY
BBA-VI SEMESTER
UNIT-I
 Syllabus of Unit I
• Nature, Importance of Business Policy
• Development and classification of business policy
• Mechanism or policy making
 BUSINESS POLICY
BUSINESS POLICY is the study of –
 Business Policy deals with decisions regarding the future of an out going
enterprise.
 Such policy decisions are taken by the top level management after
evaluating the organizational strength and weaknesses in terms of
product,price,quality,resources that how to change our self according to
the environment.
 It represents a principle that guides decisions making. It includes
guidelines , rules, procedures established to achieve the objectives.
 A business policy represents the best thinking of the company
management as to how the objectives may be achieved in the prevailing
economic and social conditions
• Business Policy definition by Christensen :
• “Business Policy is the study of the function and responsibilities of Senior
Management, the crucial problems that affect success in the total
enterprise, and the decisions that determine the directions of the
organisation and shape of its future.”
 Nature of Business Policy
1. It is the study of functions and responsibilities of senior management
related to organizational problems.
2. It determines future course of action.
3. It defines the character and identity of an organization.
4. It is concerned with mobilization of resources to help an organization
achieve its goals.
5. It involve a choice of purpose.
6. It covers many aspect of business.
 Importance of Business Policy
1. For learning purpose: It integrates the knowledge & experience.
It cuts the narrow financial boundaries. It makes the study of management
more meaningful.
2. For understanding business environment: To understand
how policies are formulated. It makes the task of policy implementation
simpler.
3. For Understanding the organization: It presents a basic
framework for understanding strategic decision-making.
4. For personal development: To understand the impact of
policies on position. To understand the senior manager’s viewpoint. To
identify growth areas for development.
5.For providing responsibility: it provides the responsibility and
liability of each position of an organization.

6.Maintains balance in the work place-it entails balance in

the work place by providing proper rules and regulations.
 Classification Of Business Policy
Business policy may be classified in the following six parts:-
1)Policy based on nature of origin-
i)Originated policy-are those which is framed by the top management and
implemented by executives .Such policy emanate( originate) from company
objectives and are expected to shape business policies further.

ii)Applied (suggested)Policy-framed on the suggestion of the subordinate

such policies are used to solve particular problems.

iii)Imposed Policy-are external policy that are imposed on the trust upon the
enterprise by outside forces such as government, trade union. Such policy
restricts the freedom of management.
(2)Policy Bases On Expression-
i)Oral Policy-when the company manager issues policy by word of mouth.
This type of policy is easy simple and quick to apply an any condition.

ii)Written policy-are those policy that are put on clear and simple words so as
to enable the user to understand them for necessary application when time
arises.

iii)Implied Policy-neither expressed orally or in writing, but could be

understood by the behavior of executives, by the code of conduct or by the
mode of behavior. Such policies flow from tradition, social values and
philosophy of the organization.
(3)Policy Based On Functions-
i)Operating function Policies -to guide the management in specialized
function areas such as personnel, marketing ,finance, production etc.
A)Personnel Policies-
 HR utilization and development such as recruitment,selection,training.
 Source of supply of man power growth such as promotion, transfer.
 Motivation,compensation,wages etc.

B)Marketing Policy
 Distribute product on a national and implemental level.
 Sell product line on various type and size.
 Marketing mix, channels of distribution, advertisement, consumer
psychology,pricing,quality.
C)Finance Policy-
 Capital requirement, short, medium and long term.
 Source of borrowings
 Credit policy
 Modernization of plant and machinery

D)Production Policy
 Manufacture product with safety and maintain government standards.
 Maintain quality and control test at all the stages and manufacture
product only in domestic state.
 Inventory control
 Production budget and cost.
 Product line,type,nature
 Plant location and layout.
ii)Managerial Functional Policies-to guide the management in the field
of managerial function such as planning,organizing,directing ,controlling etc.

(4) Policies based on scope of organization-

i)Basic policies-are fundamental policies which explain the nature of the

business activities. They are act as guide friend and philosopher to the
organizational person.
ii)General policies-they are more specific and applied to large segment of
the organization. Framed by the lower level management. They are broad as
they cover main areas of activities.
iii)Specific policies-framed by the lower level management for the
specific task under special guidance and instructions for a specific task or
purpose such as supply of material, labor discipline etc.
(5)Policy based on levels of management-

i)Top Management Policies-

 It is the role and responsibility of the top level management to keep the
organization healthy.
 Strategic decisions are always taken by the top level management.
 It is mainly related to the functions of finance, public relation, merger ,long
range product selection,goal,dividend decisions etc.
 Policies set by the top level management at this stage is originate from
certain source.

ii)Middle Management Policies-

 Policies set at this level tends to follow the preferences of top or lower level
management.
 It includes functional employment and training ,selection of executives,
channels of distribution etc.
iii)Operating Management Policies-
 It mainly applies to the operational aspect of the functional are in the
organization.
 It originates at lower level of management and there fore it is more
significant and silent but more specific then higher level policy.

(6)Policies based on situation-

i)Normal policies-aim at smooth working of day today operations. They
are not suitable for meeting any abnormal situations.

ii)Contingency Policies-they operate where the situation is unexpected

which may effect the smooth functioning of the business.
 Steps in policy formulation/making
• 1. Environmental Analysis
• 2. Identification of Policy Alternatives
• 3. Evaluation of Policy Alternatives
• 4. Choice of Policy
• I) Environmental Analysis -There are basically two environmental
factors: internal and external. The two together provide for identification
of problem areas with respect to which the policies could be made.

• 2.Identification of Policy Alternatives-The environmental analysis

helps to determine the opportunities and threats facing the company and
also its strengths and weakness. When the organization is engaged in the
matching of its strengths with the opportunities, various policy options
emerge

• 3. Evaluation of Policy Alternatives -The evaluation of policies is

known as policy audit. The alternatives can be evaluated on the basis of
their consequences in terms of their contribution to corporate goals.
Several criteria could be used for evaluation like growth, unit, profitability,
development, organizational goals, etc.
• 4.Choice of Policy -If any of the alternatives are not acceptable and
not consistent with company’s objectives then the process reverts back to
the identification of alternatives where fresh alternatives are looked for.
The search begins again. After the policy has been made, it becomes
necessary to review it from time to time so that it does not become
obsolete.
Historical evolution of Business policy
Evolution of Business Policy has undergone four
Paradigms
• Paradigm One: Ad-hoc Policy – making.
1900 -1930: Era of Mass Production – Maximizing output, Normally a
Single Product, Standardized and low cost product, catering to unique set
of customers servicing limited geographical area – Informal control and co-
ordination. The Strategic planning was centered on maximizing output.

• Paradigm Two – Integrated Policy Formulation.

1930-1940: Changes in Technology, Emergence of new industries, Demand
for novelty(uniqueness) products even at higher costs, Product
Differentiation, Market segmentation in increasingly competitive and
changing markets. These all made investment decisions increasingly
difficult. This was era of integrating all functional areas and framing
policies to guide managerial actions.
• Paradigm Three – The Concept of Strategy.
1940- 1960: Planned policy became irrelevant due to increasingly complex
and accelerating (get faster) changes. Firms had to anticipate
environmental changes. A strategy needed to be formed with critical look
at basic concept of Business and its relationship to the existing
environment then.

• Paradigm Four – The Strategic Management

• 1980 & onwards: The focus of Strategic Management is on the strategic
process of business firms and responsibilities of general management.
• Everything out side the four walls is changing rapidly and this
phenomenon is called as “Discontinuity” by Mr. Peter Drucker. Past
experiences are no guarantee as science and technology is moving faster.
•The world is substantially compressed and managing the External & Internal
environment becomes crucial function.
•What to produce, where to market, which new business to enter, which one to
quit and how to get internally stronger and resourceful are the new stakes.
•Strategic Planning is required to be done to endow (favour) the enterprise with
certain fundamental strengths which could take care of eventualities resulting
from unexpected environmental changes.
 Difference between Policy and Strategy

 Policy is a blueprint of the organizational activities which are repetitive in

nature. While strategy is concerned with those organizational decisions
which have not been faced before in same form.
 Policy formulation is responsibility of top level management. While
strategy formulation is basically done by middle level management.
 Policy deals with routine activities essential for effective and efficient
running of an organization. While strategy deals with strategic decisions.
 Policy is concerned with both thought and actions. While strategy is
concerned mostly with action.
 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.