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Management Concepts & Organisational Behaviour - Policies

Major Areas of Policy Making - Policies

   Posted On :  17.05.2018 10:30 pm

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 Making
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 non-price variables.


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 funds.
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 credit scales.
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
motivation and morale.


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
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