Management Concepts & Organisational Behaviour - Policies

Policy Formulation

   Posted On :  17.05.2018 10:26 pm

As mentioned earlier, the basic intention of policies is to help executive thinking in decision-making.

Policy Formulation
As mentioned earlier, the basic intention of policies is to help executive thinking in decision-making. Policies are formulated for all the key functional areas of business like production, marketing, finance, personnel and so on. Effectiveness and consistency of decisions in all these areas depend on how well the policies are formulated and understood. A policy is a plan. Therefore, the steps involved in policy formulation are similar to the steps in planning. Though policies vary in respect of scope, the process of policy formulation usually involves the following steps.


Corporate Mission

Corporate mission specifies the purpose for which the organisation exists. It relates the organisation to the environment in which it operates. It is natural, therefore that all the activities of the organisation are geared towards the achievement of the mission. The mission statement provides the direction to the organisation. As such, thorough understanding of the corporate mission is the starting point for policy formulation.

Appraisal of the Environment

Environment appraisal in a systematic way is the key for successful formulation of the policies. Correct appraisal of the environment enables the organisation to integrate its activities with the needs of the society. As such, the nature of the environment, the various dynamics of it have to be analysed. It includes collection of relevant information from the environment and interpreting its impact on the future of organisation.

Corporate Analysis

While the focus in environmental appraisal is on the internal factors of the business, corporate analysis takes into account the internal factors. Corporate analysis discloses strengths and weaknesses of the organisation and points out the areas that have potential. This is an inward looking exercise.

Identification of Alternatives

The above two steps – environmental appraisal and corporate analysis popularly known as SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis will help identifying the alternative policies. For example, the objective of the organisation is expansion. This may be achieved by several ways, diversification of the activities, acquisition of existing businesses, and establishment of subsidiaries abroad and so on. Again, if diversification is chosen, it has to be decided whether it is into related or unrelated business. The alternative policies thus identified have to be evaluated in the light of the organizational mission and objectives.

Choice of the Right Policy

This stage involves choosing the right policy from among the several policy options that suits the organizational objectives. The Corporate history, personal values and attitude of the management and the compulsions in the environment, if any, influence the choice of the policy.

Policy Implementation

Effective implementation of the policy requires designing suitable organisational structure, developing and motivating people to contribute their best, designing effective control and information systems, allocation of resources, etc. At times, polices may have to be revised in line with the changes in the environment. Further, Polices need to be monitored constantly during the implementation stage so that inadequacies if any, may be corrected at the appropriate time.


Tags : Management Concepts & Organisational Behaviour - Policies
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