Definition: Policies can be defined as the fundamental written statements which are meant to guide the thinking and action in decision making of the managers. It is a standing solution for recurring situations, as it is a ready reference to many problems.

A firm’s policies are framed by the Chief Executives and Board of Directors while taking suggestions from all the subordinates. It helps in directing and limiting the scope of actions of the firm while pursuing its long term goals and protecting the interest of the company.

Characteristics of Ideal Policy

Upcoming points will explain the characteristics or qualities of an ideal policy:

  • Objective-oriented
  • Clear and explicit, which removes chaos and ambiguities
  • Carefully designed
  • Simply presented, facilitating the understanding to all in the correct manner.
  • Based on the holistic view, taking into account all employees, resources, facilities etc.
  • Practical
  • Flexible enough to match the needs of the firm and allow reasonable discretion to subordinates who are responsible for its implementation.
  • Reviewed, revised and replaced whenever required.
  • Properly communicated and implemented.

Policies serve as the company’s rules and principles developed and adopted, so as to attain a rational outcome through consistency in their decision making. For the purpose of formulating policies, first of all, the core activities of the firm are identified and basic strategy is laid out, on the basis of which the managers decide the way in which issues are handled.

Classification of Policies

The policies are classified as under:


  1. On the basis of Origin/Source:
    • Originated Policies: Policies which are framed by the top executives, and directs the employees about what decisions they can take in a particular situation. Hence, the employees are supposed to follow them strictly.
    • Appealed Policies: If a subordinate is confused regarding if he/she possesses sufficient authority to look after the situation or not, in that case, the subordinate may seek an order from the superior. This order is said to be appealed authority.
    • Imposed Policies: Imposed policies are the ones imposed on the business, by the external agencies like government, suppliers, trade unions, industry associations, creditors, etc.
  2. On the basis of Level:
    • Basic Policies: Those policies of the firm which are pursued by the top management level are regarded as basic policies.
    • General Policies: General Policies are for middle-level management, as they are related to the company’s day to day operations and dealings.
    • Departmental Policies: Departmental policies are specific in nature as they are framed for the particular department only. For instance marketing policies, production policies, personnel policies, purchase policies, finance policies, research and development policies.
  3. On the basis of Managerial function:
    • Planning Policies: Such policies embraces future courses of action, as they are formulated to achieve business targets. These can be organization-wide or department-wide policies.
    • Organizational Policies: Policies concerning organizational goals and objectives are termed as organizational policies.
    • Motivation and control Policies: Policies established to motivate or encourage employees as well as to control their activities, so as to lead the firm’s objectives, while satisfying the personal goals of the employees.
  4. On the basis of Expression:
    • Written Policies: As the name suggests, written policies are those policies of the firm which are published to guide the employees and also to have a basic understanding of the company’s rules. Some of the written media, where written policies can be found are – bulletins or notice boards, news releases, handbooks, booklets or manuals.
    • Implied Policies: Policies which emerges from the conduct are implied policies. It emanates in the area where existing policies are not in force.
    • Implicit policies: Policies communicated by word of mouth by the key people in the organization are called implicit policies.

Policies the basic set of rules which the employees are required to follow at the time of working and responding. It embraces the ‘how’ facet of planning. It defines as well as confines the limit of the behaviour of employees and so the employees have to work within the periphery of policies.

Purpose of Policy Formulation

  • To facilitate uniformity in actions.
  • To set boundaries that provide basic limits and directions for managerial actions.
  • To ensure quick decision making.
  • To assist in coordinating the efforts of the employees.
  • To ensure that goals are achieved as planned.
  • To ensure effective delegation of authority, as it sets limits for the decisions taken by the subordinates.

In finer terms, a policy is nothing but a predetermined course of action, framed to provide a protocol for accepted business strategies and objectives. The policies of every organization are different in different areas like staffing, customer service, marketing, sales, quality, reward, etc.

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