Policies are designed to guide the behaviour of managers in relation to the pursuit and achievement of strategies and objectives. Policies are instrument for strategy implementation.
The term policy has various definitions in management literature. Some authors equate policy with strategy. Others do this inadvertently by using "policy" as a synonym for company mission, purpose or culture.
This thesis defines policy much more narrowly as specific guides to managerial action and decisions in the implementation of strategy.
This definition permits a sharper distinction between the formulation and implementation of functional strategies.
Policy refers "to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work towards stated goals." Most authors consider procedures and rules to be policies. Procedures can be defined as chronological steps that must be followed to complete a particular action; rules can be defined as actions that can or cannot be taken. Neither a procedure nor a rule provides much latitude in decision making, so some writers do not consider either to be a policy.
Policies and procedures help enforce strategy implementation in several ways:
- Policy institutionalizes strategy-supportive practices and operating procedures throughout the organization.
- Policy reduces uncertainty in repetitive and day-to-day activities in the direction of efficient strategy execution.
- Policy limits independent action and discretionary decision and behavior. Procedures establish steps how things are to be handled.
- Policy helps align actions and behaviors with strategy. This minimizes zigzag decisions and conflicting practices and establishes consistent patterns of action in terms of how the organization is attempting to make the strategy work.
- Policy helps to shape the character of the working environment and to translate the corporate philosophy into how things are done, how people are treated, and what corporate beliefs and attitudes mean in terms of everyday activities.
- Policy helps establish a fit between corporate culture and strategy.
Koontz and O'Donnell suggest that the following principles determine the potential effectiveness of policies in relation to strategy implementation:
- Policies should reflect objectives
- The existence of a policy can only be justified if it leads to the achievement of the organization's objectives.
- Policies should be consistent
- Policies which conflict with each other should be avoided.
- Policies should be flexible
- In general policies should neither be ignored nor departed from indiscriminately.
- The extent to which a policy is mandatory, as opposed to advisory, should be clear.
- Policies should be communicated, taught and understood
- It is important to ensure that employees understand the existence and meaning of policies, and appreciate why they exist.
- Policies should be controlled
- Stated policies can be assessed and controlled as part of any formal planning system and strategic review.
Policies may be written and formal or unwritten and informal. There are at least seven advantages to formal written policies:
- Managers are required to think through the policy's meaning, content, and intended use.
- The policy is explicit so misunderstandings are reduced.
- Equitable and consistent treatment of problems is more likely.
- Unalterable transmission of policies is ensured.
- Authorization or sanction of the policy is more clearly communicated, which can be helpful in many cases.
- A convenient and authoritative reference can be supplied to all concerned with the policy.
- Indirect control and organizational coordination, key purposes of policies, are systematically enhanced.
Policies can exist for any functional tasks undertaken by the organization. Moreover, effective decisions cannot be made without regard to their impact on other areas of the business. For example, policy of minimizing the inventory may come at the expense of satisfying customers. Trade-offs are generally required in this process.