What are Policies? Definition, Aspects, and Examples

What are Policies?

Policies are established guidelines, rules, and procedures for the smooth functioning of the organization to achieve the desired objectives. They are created to aid in the achievement of stated objectives.

They are the means through which annual objectives have been met. They demonstrate the scope of decision-making and address scenarios that occur repeatedly. Marketing, finance/accounting, production/operations, research and development, and human resource systems activities are frequently mentioned in policies.

Policies can be established at the corporate level, business level, and functional level. The corporate-level policies are applied to the entire organization. The business-level policies are applicable to a particular business unit and the functional-level policies are formulated to address the functional units of each business.

The strategy’s implementation is guided by policies. They make routine problems easier to solve. They define what can and cannot be done in order to achieve organizational goals. Employee and manager performance expectations are clearly stated. As a result, policy development at all levels of an organization is critical for the successful execution of a strategy and, ultimately, for achieving strategic management objectives.

Policies establish consistency and coordination within and between organizational departments. Policies, like annual objectives, are especially important in strategy implementation because they outline the organization’s expectations of its employees and managers.

Aspects of Business Policy

There are many aspects of business policy (Kazini, 2009).

  • It is considered the study of functions and responsibilities of the senior management related to those organizational problems which affect the success of the enterprise as a whole.
  • It deals with the determination of the future course of action by the organization.
  • It involves a choice of purpose and defining what needs to be done in order to mold the character and identity of the organization.
  • It is also concerned with the mobilization of resources with the help of which the organization can achieve its goals.

Examples of Companies Policies

  • 3M: 3M says researchers should spend 15% of their time working on something other than their primary project. (This supports 3M’s strong product development strategy.)
  • Intel: Intel cannibalizes its own product line (undercuts the sales of its current products) with better products before a competitor does so. (This supports Intel’s objective of market leadership.)
  • General Electric: GE must be number one or two wherever it competes. (This supports GE’s objective to be number one in market capitalization.)
  • Southwest Airlines: Southwest offers no meals or reserved seating on airplanes. (This supports Southwest’s competitive strategy of having the lowest costs in the industry.)
  • Exxon: Exxon pursues only projects that will be profitable even when the price of oil drops to a low level. (This supports Exxon’s profitability objective.) Source: Wheelen and Hunger(2012) P. 21

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