As mentioned earlier, policies are normally formulated for all the key areas of the business. Some of the important areas for which policies are required are discussed here.
Major Areas of Policy
As mentioned earlier, policies
are normally formulated for all the key areas of the business. Some of the
important areas for which policies are required are discussed here.
Out-scoring has become the order
of the day where in many companies are producing the components from other
companies. Thus, in the area of production, make or buy decision is an
important policy. For instance, automobile companies buy many accessories and
parts from outside rather than making those parts themselves. This type of
policy enables the organization to concentrate on the basic product. However,
it depends largely on the resources of the organization and how well the
companies maintain the relationships with the vendors.
Another important policy pertains
to the production run. The volume of
output depends on the production run. The demand for the product in terms of
orders, costs of tooling, economies of scale are some of the factors that
influence the production run. some companies choose to produce them in order .while some companies may
produce in anticipation of demand, during slack season, there are companies
which produce some fill-in-products to make good use of facilities. Issues
relating to innovation, new product development and diversification are the
other important aspects which require policy direction.
As the business world has become
increasingly competitive, marketing has acquired tremendous importance in the
recent times. Peter Drucker regards innovation and marketing as the two
important functions for every business. The success of any organization
therefore depends on how strong it is in these two basic functions. In the area
of marketing, answers to such basic questions help in formulating the politics.
The questions include;
1. Who are our customers and what do they buy?
2. Why do they buy our product?
3. What do we offer in relation to our competitors?
4. What supporting services do we offer?
5. What is the price to be charged?
Appropriate answers to these
questions help in deciding the product, pricing, distribution, and promotional
policies of the firm. Among these, pricing policy is our utmost significance.
Issues related to how to face the competition are resolved with a sound pricing
policy. For instance, weather to indulge in price competition or non-price
competition are the two basic issues in this regard. In the former case the
firm meets competition by cutting the prices while in the later, competition is
met by promotion, advertising, and after sales service, etc. the emphasis is on
Financial aspects normally set
the limits to the expansion of the business. The required funds for the
business may be furnished by the owners or borrowed from outside sources. The
actions of management with regard to procurement, utilization and distribution
of funds are guided by the broad politics laid down for the management of
Important policy decision
pertains to the proportion of the equity to the debt capital. The relative
merits and de merits in raising the funds through equity and debt as been
examined. Further in the case of a growing concern, funds may also be raised
through retaining a portion of the profits in the business. This in turn
influences the dividend policy of the organism.
Working capital management is
another area which requires policy direction. Adequate working capital is
necessary for any business for maintaining credit and meeting obligations.
Policies regarding working capital vary from company to company depending upon
the size and nature of the business. For instance, public utility concerns with
regular cash collection may need less working capital than those engaged in the
manufacture of specialized machines. Similarly, a company operating on strictly
cash basis requires less working capital than one operating on predominantly
Policies relating to the
distribution on profits of the business are equally important. This is equally
influenced by factors including-the desire of the shareholders, the company’s
future plans of expansion ,availability of other sources of obtaining capital,
the urgency of the need for additional capital and availability of
re-investable profits. If multinational companies like Hindustan lever, Brooke
bond, Colgate etc., enjoy tremendous investor clout and emerged as blue chip
companies, it is because of investor friendly policies relating to dividends
and frequent capitalization of resources.
Any organization can be as
effective as the people in it. Many problems in the organizations are obviously
people related in nature. It is therefore, needless to say that sound personnel
policies ensure good employer and employee relations. Important policies in
this area relate to recruitment and training, compensation and other employee
benefits and the attitude of the management towards labor unions. All these
policies are normally influenced by factors such as skills required at various
levels, the attitude of the people towards work and the philosophy of the management.
On the whole, good employee-oriented personnel policies encompassing the above
mentioned issues would contribute to employee
The terms ‘strategy’
has been adopted from war and is being increasingly used in business to reflect
broad overall objectives and policies of an enterprise. In the context of
business, strategy refers to the firm’s overall plan of dealing with its
environment. Strategies most often denote a general programme of action and
deployment of resources to attain comprehensive objectives. Strategies are
plans made in the light of the competition because modern business entreprise
operates in a competitive environment. They are a useful framework for guiding
enterprise thinking and action. For instance, a company may follow a strategy
of charging a lower price or using more sales force than competitors and
advertising more heavily than competitors.
The purpose of strategies is to
determine and communicate, through a system of major objectives and policies, a
picture of what kind of enterprise is envisioned. They do not attempt to
outline exactly how the enterprise is to accomplish its objectives since this
is the task of countless major and minor supporting programmes. But they are a
useful framework for guiding enterprise thinking and action.
Tags : Management Concepts & Organisational Behaviour - Policies
Last 30 days 1521 views