policy

Policy, an accordion word, which applies to determining payment for overtime at one extreme to the position of a firm in its markets at the other. (Andrews, 1987, pp xii).

See business policy.

Delineating between policy, strategy, resources, and tactics (Davies, Warnock, (2000), Understanding Strategy, Strategy & Leadership, 28, 5) --
Strategy can be best understood if it is viewed as an element of a troika that includes policy, strategy, and resources (the PSR Troika). It also helps to focus on two aspects of strategy: the causal relationship between strategy and the other elements of the PSR Troika; and the plurality of inputs, options, and outcomes that characterize strategy.

Policy --
Policy is from the word for the Greek city-state, polis. In government, policy is the product of a legislature that delineates the goals, objectives and priorities of the state. In business, the term ""policy"" is used to define a company's principal goals and objectives and to prescribe the company's operational domain. Corporate policies define a company's reason for existing (to maximize shareholder wealth and/or fulfill one or more social or economic function), what the company does (design, develop, manufacture and/or market products and/or services), and where the company does it (by industry and/or geographical area). The responsibility for determining corporate policy rests with a company's legislative branch - its board of directors - under the leadership of the chairman of the board. Policy defines a company's raison d'être and sets the parameters within which it intends to achieve its purpose. Policy defines what is to be achieved.

Strategy --
Strategy is from the Greek strategos, which means general. In the Greek city-states, the military general was responsible for formulating a plan for bringing the legislature's policy decisions to fruition and for implementing that plan. In business, strategy is a design or plan for achieving a company's policy goals and objectives. Whereas, policy defines the company's goals and objectives and its operational domain, strategy decides how the company's goals and objectives will be achieved, what operational units will be used to achieve the company's goals and objectives, and how those operational units will be structured. Strategy also determines what resources will be needed to achieve the company's goals and objectives and how these resources will be acquired and used. Strategy is a design or plan that defines how policy is to be achieved.

This definition of strategy applies to corporate strategy and unit strategy. Unit strategies are plans for achieving the goals and objectives of an operating unit, an industry or geographical operating area, or a managerial or business function. Unit strategies include a company's marketing strategy, acquisition strategy, alliance or affiliation strategy, human resources recruitment and retention strategy, production strategy, and financial strategy. They also include a company's division strategies, subsidiary strategies, and country strategies. Corporate strategy, on the other hand, refers to strategy that is used to achieve corporate goals and objectives, that is, to achieve corporate policy.

Whereas policy is a legislative function, strategy is an executive function. The responsibility for formulating and implementing a corporation's strategies rests, therefore, with a company's senior management, under the leadership of the chief executive officer.

Resources --
The third element of the PSR Troika is resources. Resources are the materiel and methods that provide the components of corporate and unit strategies. Materiel includes capital, physical plant, raw materials, and parts, and less tangible components such as distribution networks, technology, human resources, market data, market reputation, and the ability to borrow. Methods includes a range of management, manufacturing, and marketing functions and processes, such as motivational, negotiating, and alliance skills, and other intangible resources that are covered by the terms ""benchmarking,"" ""best practices,"" ""outsourcing,"" ""ISO 9000,"" ""total quality management,"" ""core competencies,"" and ""competitive capabilities."" A company's resources make the formulation of corporate and unit strategies possible and give effect to strategy implementation. Resources are the sine qua non of strategy: without resources, strategy can achieve nothing.

The resources element of the PSR Troika provides the with-what for implementing strategy and, therefore, for achieving policy. It is strategy, however, that drives decisions relating to the acquisition, development, and deployment of a company's resources; and it is strategy that determines the priority that will be given to different resources, how the combination of resources will be configured, and how resources will be used.

Tactics --
Because resources are a means for implementing strategy, they can be confused with tactics. Both resources and tactics are related to how strategy is achieved, but tactics (from the Greek taktikos, of order or arranging) refers to the detail of strategic designs and to the detailed actions that are needed to effect strategy implementation. Tactics are the detail-how of strategy, whereas resources are strategy's with-what.

Weighting of the elements of the PST Troika -- The three elements are equal in weight and standing, and all three elements act in unison. In the case of the PSR Troika, however, current usage by management theorists and corporate executives gives the three elements very unequal weight and standing. Policy is seen as an abstract and somewhat bookish concept that is more applicable to the public sector than to business, and resources are seen as necessary but boring. Strategy, on the other hand, is seen as the glamorous, 2,000-pound gorilla.

The distortion in the perceived weight and standing of policy, strategy, and resources has meant that everything that matters gets to be called ""strategy."" The term is frequently applied to what is, in fact, policy. This terminology transposition makes it difficult to differentiate between policy and strategy - to distinguish between the what and the how - making it necessary to invent new terms such as strategy action plans when referring to strategy, or strategic intent when referring to policy[2]. To make matters worse, some strategy theorists argue that strategy includes not just everything that matters, but ""everything a company does or consists of"" [3] .

The terminology transposition is also applied to resources. Some authors have defined strategy as resources development and utilization[4]. Hamel and Prahalad present core competencies as strategy[5] - as do some proponents of total quality management, benchmarking, best practices, outsourcing, and ISO 9000. A materiel or methods resource (such as David Kearns' Leadership Through Quality Program, which is credited with the turnaround at Xerox) can become the critical factor in a company's survival and success. But even in these cases, they remain resources.

Causality in the PSR Troika --
The primary characteristic of strategy is that it has a causal relationship with the other two elements in the PSR Troika. Resources provide the with-what means for achieving strategy; and strategy is the how means for achieving policy. These direct relationships result in an indirect means-ends relationship between resources and policy.

Example of GE -- In practice, policy defines the principal goals and objectives of the corporation and the domain in which it will operate. In 1983, two years after becoming chairman and CEO of General Electric, Jack Welch mandated that GE would only be in businesses where it could be number one or two, and redefined GE's operational domain by drawing his now famous Venn diagram (the three overlapping circles that prescribed the three areas within which GE would concentrate).

Corporate policies define goals and objectives that are relatively fixed and that help develop and sustain direction. This fixedness of corporate policy is especially applicable to a company's raison d'être, which may go unchanged for decades. Operational domain policies, however, are more subject to periodic change. For example, since 1981, Jack Welch has periodically adjusted GE's policy to focus on financial services, to shift GE from a hardware company to a services company, and most recently to focus on Europe. Some analysts have called these changes in strategy, but they are changes in policy: they relate to operational domain - to what the company does and where it does it.

The practical purpose of strategy is to provide a plan that employs multiple inputs, options, and outputs to achieve a company's policy goals and objectives. To achieve GE's corporate policy goals and objectives, Welch used divestiture strategies to remove units that did not satisfy financial performance policies or that fell outside the parameters of his Venn diagram; he used acquisition strategies to add units that fit with his vision of GE as a ""unique, high-spirited, entrepreneurial enterprise""; and used vertical and horizontal diversification strategies to achieve the company's policy shift from hardware to services. This resulted in the divestiture of Utah International (one of the GE's largest and most profitable subsidiaries), because as a mining company it did not fit within the company's domain parameters, and drove GE's acquisition of NBC and financial services companies.

The purpose of the resources element of the PSR Troika is to supply the materiel and methods that are the components of corporate and unit strategies. Although many of the measures taken by Jack Welch to keep GE achieving its policy objectives have been strategic, part of GE's success is due to the design, development, acquisition, and implementation of resources that provide the with-whats that are needed to give effect to the company's new strategies. For example, GE's highly publicized use of workouts, benchmarking, process mapping, and best practices - and the aggressive use of other motivational and cost cutting measures - are all resource methods.

Elements of policy --

• policy positions -- Policy positions are formal statements that are developed by a company's board of directors or senior management to spell out the company's core values and beliefs, and/or define the company's position on a specific issue. For example, General Motors, General Foods and Johnson & Johnson issue policy positions on affirmative action, professional ethics, the environment, and customer service, and issue ad hoc policy position statements relating to the recall of a defective product or to communicate their response to regulatory or industrial action.
• operations policy -- Operations policies are rules, regulations, guidelines, or contractual standards that govern the conduct of a company's operations. When Nordstrom states its legendary return and refund policy or McDonald's states the supply provisions of its franchise policy, both companies are using the word ""policy"" to lend weight to what is, in fact, a company operating rule, regulation, guideline, or contractual standard.
• mission -- Mission statements are mechanisms for communicating corporate or institutional policy to an organization's internal and external constituents. They are grounded in that part of policy which defines the organization's raison d'être, but they frequently address operational domain and sometimes include references to strategy.
• vision -- Vision is also policy-related. But unlike mission statements, which are derived from corporate policy, vision provides a conceptual precursor to the creation of corporate policy. Vision is seeing a desired future situation. Jean-Paul Sartre (when talking about art, religion, science, social structures, and politics) defined vision as the ability to think of what is not. In business, vision is Jeffrey Bezos in 1994 imagining the virtual bookstore and in 1999 seeing Amazon.com as the ""earth's biggest river, the earth's biggest selection"" [10]. It is Jack Welch in 1981 saying, ""A decade from now I would like General Electric to be perceived as a unique, high-spirited, entrepreneurial enterprise... "" [11].
  The what of corporate vision, the image of what the corporation will be and what it will do, provides the conceptual basis for corporate policy. The visual image of how these whats will be achieved provides the conceptual basis for corporate strategy.