What are Policies? Meaning, Definition, Characteristics, Types,

Table of Contents:-

1. Meaning of Policies
2. Definition of Policies
3. Characteristics of Policies
4. Types of Policies
5. Importance of Policies
6. Limitations of Policies

What are Policies?

What are Policies? Policies are essentially guidelines that direct the thought process and actions of decision-makers involved in achieving enterprise objectives. Moreover, they provide ready answers to all questions faced in the running of the enterprise.

Procedures are formulated in broad terms and provide a comprehensive and flexible course of action to be pursued to attain the given objectives. Thus, they give a concrete touch to objectives. It’s important to recognize that procedures do not offer specific decisions in themselves. They only lay down the limits within which decisions have to be made.

For example, an enterprise that has set the objective of promoting the development of people in the area may follow the policy of employing only local people. Similarly, an enterprise may follow the policy of selling only against or of filling up managerial posts among its employees.

Definition of Policies

According to Koontz and O’Donnell, “Policies are general statements or understandings which guide or channel thinking in the decision making of subordinates”.

According to Joseph L. Massie, “Policies include that body of understanding (generally known by members of the group), which makes the action of each member of the group in a given set of circumstances more predictable to other members”.

According to Dale Yoder, “A policy is a pre-determined and accepted course of thought and action that is defined and established as a guide towards accepted goals and objectives”.

Characteristics of Policies

Effective procedures require meticulous formulation, taking into account every facet of the forthcoming application context.

The following points must be borne in mind while formulating a policy:

1. Represents the Desired Image of the Company
2.  Objective Related
3. Adequate Number
4. Flexible
5. Broad Outlines
6. Sound and Practicable
7. Consistent

1) Represents the Desired Image of the Company

A policy should establish the desired image of the company. Policy is a useful indicator of the conduct and philosophy of the company and what the company stands for. These procedures being formal statements can easily be communicated to the organisational members as well as the outside public.

2) Objective Related

A good policy should be related to the objectives of the company and be in harmony with the economic, political, social and legal environment of the company. A policy is an instrument for moving towards objectives. If the law demands equal opportunities for all and society expects it, then the policy should be consistent with these requirements.

3) Adequate Number

There should be an adequate number of procedures to guide thinking and action in every field of activity, for example, there should be definite procedures dealing with sales, promotion, production, personnel, advertising, finance, etc. At the same time, there should not be any duplication.

4) Flexible

Though guidelines are not meant to be changed off and on, there is a need to keep them flexible enough to be adjusted to suit the needs of changing times,

5) Broad Outlines

A policy should provide only a broad outline, leaving it to the managers to decide within its framework. Moreover, if it is made to cover every detail, it would only hamper individual style and initiative. But at the same time, it needs to be precise to avoid any potential misinterpretations.

6) Sound and Practicable

The policy of an organization adheres to define its identity and reputation. In addition, it is a great image-builder. For this reason, procedures decided by an organisation should be logical and sound in every respect. Only then managers can rely on them and confidently tackle all the problems.

7) Consistent

There may be several procedures dealing with different questions. Hence, it is important to ensure that the procedures are not mutually contradictory. If there exists a disparity between two policies, the decision making process will inevitably experience a slowdown, as managers will be uncertain about which of the two policies holds stronger endorsement from their superiors.

Related Articles:

• nature of marketing
• difference between questionnaire and schedule
• features of marginal costing
• placement in hrm
• limitations of marginal costing
• nature of leadership
• difference between advertising and personal selling

Types of Policies

The following are the types of policies:

1. Based on Broadness
2. Based on Origin
3. Based on Freedom
4. Based on Clarity

1) Based on Broadness

Based on broadness there are two types of policies: 

1. Organisational Policies
2. Functional or Departmental Policies

i) Organisational Policies

Top-level managers formulate organizational procedures, which extend to the entire organization. For example, If the decision made by top-level managers is to base promotions within the organization on age, then promotions across all departments will solely consider age as the criteria.

ii) Functional or Departmental Policies

The purpose of formulating these guidelines is to address the unique functions of businesses or departments. Its relation is only with a particular department instead of the entire organization. For example, the economic policy, production policy, marketing policy, industrial policy, financial policy, research policy, commercial policy, monetary policy, fiscal policy etc.

2) Based on Origin

There are three types of policies based on origin: 

1. Basic Policies
2. Appealed Policies
3. Imposed Policies

i) Basic Policies

Top-level managers establish these approaches to provide guidance for the activities of their subordinates. Additionally, they are mainly in written form and are added to the policy manual.

ii) Appealed Policies

Appealed policies are framed based on appeals made by the subordinates. When a thing is vague in the main procedures, the superior managers lay down a separate policy in the way of clarification.

iii) Imposed Policies

External pressures, such as those from the government and business associations, compel the formulation of these procedures. The influence of these forces often leads to the alteration of existing guidelines or the establishment of new ones.

3) Based on Freedom

There are two types of policies based on freedom: 

1. General Policies
2. Specific Policies

i) General Policies

Under general guidelines, the subordinates comparatively have more freedom to make decisions. For example, The organization’s sales policy permits the sale of goods on credit, representing a standard practice. Under this policy, the sales office has the freedom to supply goods on credit to any customer.

ii) Specific Policies

When the policy of furnishing goods on credit includes a condition that restricts a specific customer’s debit balance to 750,000, it becomes a specific policy. This will limit the freedom of the sales manager to sell goods on credit.

4) Based on Clarity

There are three types of policies based on clarity: 

1. Written Policies
2. Oral Policies
3. Implied Policies

i) Written Policies

Guidelines that are clarified in writing are called written procedures. The great advantage of these approaches is the clarification of ideas but their main drawback is their inflexibility.

ii) Oral Policies

Oral policies involve the explanation of procedures using spoken language. In this context, these approaches have the advantage of being flexible and open to adjustments.

iii) Implied Policies

Implied policies are essentially the understood norms and practices that guide behaviour within the organization. For example, there is no maximum age limit prescribed for recruitment in the organisation but the superior managers periodically examining the age of the persons employed can form an idea that no person above thirty-five age be employed.

Importance of Policies

The importance of policies is as follows:

1. Confidence building
2. Broader applicability
3. Consistency
4. Guide to thinking and action

1) Confidence Building

With well-formulated procedures providing ready answers to all possible questions, managers can confidently face any problem situation. Besides, if managers strictly adhere to guidelines, they may have nothing to fear even if some of their decisions do not produce the expected results because, in that event, they can shift the blame to the inadequacy of procedures.

2) Broader Applicability

The formulation of procedures involves a careful assessment of multiple factors to ensure effective decision-making. These principles possess universal applicability, making them equally effective in resolving problems of varying types and sizes.

3) Consistency

Guidelines establish the limits within which managers at different levels of management have to make their decisions. Consequently, this leads to consistency and predictability in managerial functioning. Moreover, through this system, managers are provided the means to work collectively towards fulfilling the enterprise’s objectives.

4) Guide to Thinking and Action

Policies provide the framework within which managers have to make their decisions. Without them, managers will only grope in the dark not knowing how to tackle the various issues facing them. Thus, procedures serve as an essential guide to decision making.

Limitations of Policies

Limitations of policies are as follows:

1. No Substitute for Human Judgment
2. No Panacea for All Problems
3. No Room for Initiative
4. No Instant Solutions to Problems

1) No Substitute for Human Judgment

Procedures solely provide guidance on the approach and constraints for addressing various types of challenges. However, one cannot apply them without consideration to all types of problem scenarios. The need for the manager’s sense of judgment will remain even when he has a pre-determined policy to deal with every conceivable problem. This is self-evident. However, the idea that managers can relax their judgment and discernment after setting procedures is not accurate. In fact, certain qualities are essential for determining the appropriate policy to apply in a given situation and to what degree it should be applied.

2) No Panacea for all Problems

Procedures however intelligently formulated, cannot provide a solution to every problem. This is so because each policy is formulated under a particular set of circumstances which may not remain the same for all times to come. This is all the more true in the modern world, where social, economic, political and technological changes are taking place at a fast pace. However, this limitation can be overcome if procedures are constantly evaluated to test their usefulness in current circumstances.

3) No Room for Initiative

Too many procedures stifle individual initiative. Managers may develop a habit of strictly adhering to approaches, which could result in a diminished capacity for independent thinking. When spoon-feeding is so easily available, why take the trouble of feeding one?

There is not much substance at this point. Procedures only provide the area within which managers have to make their decisions. However, they do not provide any decisions as such. Therefore, decision making continues to be an exclusive preserve of managers and in this, they are free to exercise as much individual initiative as they like.

4) No Instant Solutions to Problems

Procedures only serve as guidelines for thinking and action by managers. They specifically point to the limits and constraints under which managers have to make decisions to solve the problems facing them. However, If a manager begins to look to them for a solution to every problem, he may be disappointed. It’s important to remember that guidelines merely offer a framework for decision-making and cannot offer a solution to every problem.

Related Questions:-

Que1. What are the characteristics of policy?

Ans. Policies provide a structured approach to decision-making and behaviour within an organization. This, in turn, helps to ensure consistency, fairness, and alignment with organizational goals and values. While procedures may vary in their scope and objectives, they generally exhibit a set of common characteristics, described as follows:

1. Implementation and Enforcement
2. Formalization
3. Guidance
4. Authority
5. Consistency
6. Flexibility
7. Conflict Resolution
8. Accountability
9. Risk Management
10. Communication
11. Longevity

Que2. What are the types of policies?

Que3. What are the features of policies?

You May Also Like:-