Policy might be defined as a basic statement serving as a guide for administrative action. It does not usually provide detailed answers to particulars problems. The manager has some degree of freedom. For example, a policy like ‘promotions based on merit only’ does not dictate the promotional choices. It simply eliminates one factor (for example, experience) as an element in the choice. Thus, a policy is a principle for conduct. It serves as a guide and a standard. It only tells people what they may or may not do. In other words, policies are guidelines to decision making. They direct the way in which activities are to be achieved. They are concerned with ‘how’ of administrative action. Objectives indicate the destination and policies provide the route.

Policies are behavioral constraints. They channel behavior toward organizational objectives by limiting what managers can do and can’t do. They are restrictive in the sense that they define the boundaries within which decisions ought to be made. Policies increase the chance that different people in different levels of organization make similar choices when independently facing similar situations. Policies make the actions of organizational members more consistent. However, policies should not be understood as ‘Ten Commandments’ leaving no room for discretion and interpretation. Policies are permissive in the sense that subordinates are allowed reasonable freedom. Unlike procedures and rules, policies are broad guides to thinking and action. As pointed out by Koontz ‘policy is a means of encouraging discretion and Initiative but within limits’.

  • Necessary of Policies

Although it is customary to view policies as written documents, this is not necessarily the case. Sometimes policies are not directly voiced. In the case of small firms policies may not be stated in writing. Policies lie within the established pattern of decisions. Action speaks louder than words and observing the boss while he handles a consumer complaint may indicate the way for subordinates to dispose of complaints in future in a similar fashion. As rightly pointed out by R.D. Hampton, ‘Policies also may remain implied because managers are ashamed of them or because they are illegal or reflect questionable ethics.’ However, in the case of large scale organizations, policies are usually expressed in writing, stuffed with information that helps decision makers choose among alterative. Policy formulation becomes an increasingly important activity as the organization balloons gigantic proportions. In fact, there is a direct relationship between organizational structure and policies. The larger the organization.  he more elaborate its policies.

Policies if they are well made and expressed in concrete terms, sharply diminish the hazard of conflicting verdicts and incompatible ill-asse11ed ventures which result from inadequate information and guidance. They simplify the decision- making process throughout the organization and this naturally releases much management time and effort for new challenges and opportunities. That is why in most of the organizations, policies are formal documents only, expressed in writing. They are either formulated by the chief executive or the executive committee consisting of all the divisional departmental heads of the company. Typical matters that might be the subjects of formulated policy are: company-wide personnel practices, pricing, the nature of product Jines, investments in fixed assets, research and development tactics, marketing activities etc. While formulating policies, management should consider the impact of external forces like legal standard, union pressures, competitor’s strategies etc. on organization

activities. Other groups like trade associations, chambers of commerce also exert considerable influence on enterprise policies and it is ‘often customary to go along with programmes advocated by such groups’. 

  • Policy Formulation

Policies provide a continuous framework for the conduct of individuals in a business. They are expressions of a company’s official attitude towards types of behavior within which it will permit, or desire, employees to act. They are the means to convert company’s objectives into a workable form. Policies indicate management thinking on important matters and inform those interested in the activities of the company about the company’s intentions regarding them. To persons outside the company – its suppliers, its customers and the public in general – an organization becomes known mainly as a result of its general and operating policies. The reputation that it enjoys is often the result of the way the outside groups perceive the company through its policy structure. A well formulated policy not only helps a manager in carrying out his work but also helps him in creating a better image of the company in the market. As such it is mandatory and highly important to consider all the contingencies of a policy before it is presented in black and white. Hastily conceived policies are open invitations to troubles.

Policies are formulated generally by top management. Such policies arise out of broad, basic needs perceived and defined by top management. Within the framework of a broad policy, several supporting policies are also developed. A policy of growth through increased sales, for instance, causes marketing managers to devise necessary policies covering advertising, sales promotion efforts, production processes etc. Sometimes policies may also originate at or near the lower levels of an organization. Policies adopted at lower levels are generally narrower, and generally deal with operational aspects. 

  • Policy Communication

Once a policy is formulated, it must be communicated to those who are ultimately responsible for its application. Formal announcements from ‘headquarters’ may not produce the desired effect and bring all employees to one line of action. Policy manuals, Company handbooks, written memorandums, board letters and announcement etc. are generally pressed into service in order to disseminate the policy. The basic idea should be to educate the members regarding the need for adopting the policy, how to put the same to use, how much discretion is allowed etc. To secure commitment, it would be better to involve non-management employees also in the policy formulation process. Such participatory approaches give the workers an opportunity to gratify deep-seated needs for recognition and influence on the group’s functioning.

  • Policy Application

Policy decisions rest basically on human judgment and intuition. For example, the official policy may specify that sales should be made on cash basis only. But a peculiar situation may arise where an influential and powerful customer has placed an order with the ·departmental store for a substantial amount and is making the payment through the cheque. The sales manager should decide whether the policy should be strictly applied or should be modified in the light of a novel situation. However, this does not mean that policies should be interpreted in a subjective way. Consistency in applying the policy is very essential, and at the same time, some flexibility is necessary in day-to-day affairs. “Flexibility and consistency may appear irreconcilable, but careful administration can recognize the unique elements in each situation without eroding the basic policy position.” 

  • Policy Review and Appraisal

In a fast changing environment characterized by rapid changes in technology, products, strategy of competitors, labor contracts, public expectations etc. policies easily become obsolete. In order to cope with these changes, periodic review of policies is necessary. It would be meaningless to accept outmoded policies because they were formulated by the founding fathers and accepted by succeeding generations of managers. Again, profitability and the flourishing nature of the company products should not make the managers postpone policy reviews to a later date. Satisfaction with status a1rangements is most unfortunate in that it leads to rejection of desirable policy changes. As pointed out by Melvin Ashen, ‘Social customs and mores, even business policies, adhered to through the years and not subjected to review, can become intellectually untouchable the most vicious kind or ritual’. Periodic review of policies is imperative if organizational complacency or managerial stagnation is to be avoided. It is part and parcel of the means of keeping an organization ‘vibrant’ and ‘on its toes’. Management requires a tough and aggressive attitude to inquire into the wisdom of existing policies and scrap them if they are found to be outmoded or obsolete. The usefulness or obsolescence of existing policies may be appraised in the light of information collected on company reputation, customer acceptance, competitive strength of the products etc. It is true that evaluation, process is difficult and calls for a considerable degree of subjective judgment but an alert management should be willing to establish standards and measure performance in such intangible areas.