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5. POLICIES


Mission, objectives and strategy are mainly the concern of top management while policies, programmes and procedures are concerned primarily with the middle and operating management level.

The time horizon for mission, objectives and strategy is long-term and their formulations have far-reaching consequences affecting the very survival and growth of the firm.

The formulation of mission,"objectives, and strategy imply interaction with the environment and their concern is with improving the effectiveness of the firm. (Effectiveness being defined as the degree to which actual outputs of the firm correspond to its desired output. Its concern is with doing the right things, right in the context of the inter-relationship between the firm and its. environment) 
On the other hand, policies, programmes and procedures affect the internal structure and operational activities of the firm. Their concern is with improving the efficiency of the firm. (Efficiency being defined as the ratio of actual outputs to actual inputs: Its concern is with doing things in the right manner.)

Setting objectives and framing strategies require decisions to be made only once in a while, but many other operations involve frequent, often periodic decision-making; To facilitate such recurrent decision making a firm may lay down guidelines. Such guidelines are known, as policies.

Policies may pertain to either the internal operations of a firm or to those decisions hitch have to be taken internally but vitally affect the implementation of the strategy and achievement of objective.

To ensure that policies act as an aid and not an obstacle in the implementation of strategy, it is important that they be derived from the design of the strategy itself.

Guidelines for Framing Policies:

  1. Policies, programmes and procedures are more "inward-directed''. Their concern is how best to utilise the available resources in achievement of the mission.
  2. Policies must evolve from past experiences, facts and participation of people who are going to be. affected by them;
  3. Policies must change with change in the characteristics of the operations or decisions which they are meant to govern and change in the environment;
  4. Policies must be flexible enough to allow for the exceptional situation, which may call for unconventional or exceptional solutions;
  5. Policies are best implemented only when they are fully accepted by the people responsible for their implementation. The best way of ensuring acceptance is to involve the concerned people in the process of framing policies;

IMPORTANCE OF POLICIES



Policies are an important tool for management for ensuring the smooth running
of the firm's day-to-day activities. 

Policies are needed to:
  1. Ensure consistency of individual decisions taken by different branches and departments. 
  2. Ensure compatibility of individual decisions with the mission and strategy
  3. Ensure consistency of decisions over time 
  4. Facilitate delegation of work and authority
  5. Avoid adhoc and arbitrary decisions.

TYPES OF POLICIES


Policies are framed in accordance with the nature of the strategy being pursued. Some examples are drafted below:

Marketing:


  1. Percentage mark-up allowed to retailers on manufacturer's price
  2. Parameters for selection and appointment of distributors and dealers
  3. Types of promotion to be undertaken by branch offices or subsidiaries

Finance:


  1. Norms for expenditure limits on different activities
  2. Treatment of bad debts

Personnel:

1. Minimum educational qualifications and experience required for recruitment at different levels

Production and Purchase:

  1. Make-or-buy decisions for non-critical, low value components
  2. Minimum quality standards of raw materials to be purchased
  3. Mode and terms of payment to suppliers.