Integrated Management

STRATEGY IMPLEMENTAION

THE NATURE OF STRATEGY IMPLEMENTAION

Strategy formulation does not guarantee successful strategy implementation. It is always more
difficult to do something (strategy implementation) than to say you are going to do it (strategy
formulation). Although inextricably linked, strategy implementation is fundamentally different from
strategy formulation. Strategy formulation and implementation can be contrasted in the following
ways:

• Strategy formulation is positioning forces before the action.

• Strategy implementation is managing forces during the action.

• Strategy formulation focuses on effectiveness.

• Strategy implementation focuses on efficiency.

• Strategy formulation is primarily an intellectual process.

• Strategy implementation is primarily an operational process.

• Strategy formulation requires good intuitive and analytical skills.

• Strategy implementation requires special motivation and leadership skills.

• Strategy formulation requires coordination among a few individuals.

• Strategy implementation requires coordination among many persons.

Strategy-formulation concepts and tools do not differ greatly for small, large, for-profit, or nonprofit
organizations. However, strategy implementation varies substantially among different types and
sizes of organizations. Implementing strategies requires such actions as altering sales territories,
adding new departments, closing facilities, hiring new employees, changing an organization’s
pricing strategy, developing financial budgets, developing new employee benefits, establishing cost-
control procedures, changing advertising strategies, building new facilities, training new employees,
transferring managers among divisions, and building a better computer information system. These
types of activities obviously differ greatly between manufacturing, service, and governmental
organizations.

MANAGEMENT PERSPECTIVES OF STRATEGY IMPLEMENTATION

In all but the smallest organizations, the transition from strategy formulation to strategy
implementation requires a shift in responsibility from strategists to divisional and functional
managers. Implementation problems can arise because of this shift in responsibility, especially if
strategy-formulation decisions come as a surprise to middle- and lower-level managers. Managers
and employees are motivated more by perceived self-interests than by organizational interests,
unless the two coincide. Therefore, it is essential that divisional and functional managers be
involved as much as possible in strategy-formulation activities. Of equal importance, strategists
should be involved as much as possible in strategy-implementation activities.

Management issues central to strategy implementation include establishing annual objectives,

devising policies, allocating resources, altering an existing organizational structure, restructuring
and reengineering, revising reward and incentive plans, minimizing resistance to change, matching
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managers with strategy, developing a strategy-supportive culture, adapting production/operations

processes, developing an effective human resource function and, if necessary, downsizing.
Management changes are necessarily more extensive when strategies to be implemented move a
firm in a major new direction.

Managers and employees throughout an organization should participate early and directly in
strategy-implementation decisions. Their role in strategy implementation should build upon prior
involvement in strategy-formulation activities. Strategists’ genuine personal commitment to
implementation is a necessary and powerful motivational force for managers and employees. Too
often, strategists are too busy to actively support strategy-implementation efforts, and their lack of
interest can be detrimental to organizational success. The rationale for objectives and strategies
should be understood and clearly communicated throughout an organization. Major competitors’
accomplishments, products, plans, actions, and performance should be apparent to all organizational
members. Major external opportunities and threats should be clear, and managers’ and employees’
questions should be answered. Top-down flow of communication is essential for developing
bottom-up support.

Firms need to develop a competitor focus at all hierarchical levels by gathering and widely
distributing competitive intelligence; every employee should be able to bench-mark her or his
efforts against best-in-class competitors so that the challenge becomes personal. This is a challenge
for strategists of the firm. Firms should provide training for both managers and employees to ensure
they have and maintain the skills necessary to be world-class performers.

IMPLEMENTATION PLAN
Implementation plan requires three tasks:

• Document the responsibilities of divisions, departments and individual managers.

• Prepare responsibility charts for managers at divisional, departmental and subordinate
levels.
• Prepare activity schedules for managers at divisional, departmental and subordinate level.

The process can be seen in the following chart.

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Responsibility charts can be drawn up for management at all levels in the organization including the
board of directors. They show the control points that indicate what needs to be achieved and how to
recognize when things are going wrong. For each manager responsibility chart will indicate the
following:

(a) The manager’s major objective.

(b) The manager’s general programme for achieving that objective.
(c) Sub - objectives. .
(d) Critical assumptions underlying the objectives and the programme.

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EXAMPLE

The responsibility chart for the marketing director might be drawn up along the following lines.
(a) Major objective and general progmmme:
To achieve a targeted level of sales, by means of selling existing well established products, by
breaking into some new markets and by a new product launch.
(b) Sub-objectives:
Details of the timing of the product launch; details and timing of promotions, advertising campaigns
etc.
(c) Critical assumptions:
Market share, market size and conditions, competitors’ activity etc.

ACTIVITY SCHEDULE

Successful implementation of corporate plans also means getting activities started and completed on
time. Every manger should have an activity schedule in addition to his responsibility chart, which
identifies what activities he must carry out and the start up and completion dates fore each activity.
The principle of network analysis (critical path analysis) can usefully be applied here. Critical
activities and dates and permissible slippage or ‘float’ times can be identified.

Critical dates might include equipment installation dates and product launch dates. In some markets,
the launch date for a new product or new model can be extremely important, with an aim to gain
maximum exposure for the product at a major trade fair or exhibition. New car models must be
ready for a major motor show, for example. If there is a delay in product launch there might be a
substantial loss of orders which the trade fair could have generated.

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The strategist has a number of tools which can be used to put strategy into action. These tools
should be utilized in a manner that is both comprehensive and consistent.
Comprehensive implementation refers to the range of techniques employed. An organization which
seeks an increased reliance on new products and customers to broaden its revenue base has a wide
selection of techniques available to make the shift. A typical approach might include in-creased
resource allocations to both research and development (R&D) and marketing, a shift in the reward
system to encourage the extra attention needed by new activities, and a change in the way activities
are grouped as well as in reporting relationships. Furthermore, it is necessary to track the progress
of new endeavors, compare progress with original plan, and provide the resulting information to
those parts of the organization which can take appropriate action. The use of functional area
strategies, the organization structure, the reward systems, the control systems, and the information
systems to implement changes in strategy constitutes a more comprehensive approach than, say, the
shift in functional area strategy alone. Consistent implementation minimizes conflicting signals
when several techniques are being used. A conflict could occur, for example, when a shift in
structure to allow for managerial attention to new products is implemented under a reward system
which focuses sales force attention on repeat sales to current customers.
Lack of comprehensiveness and consistency are manifest in different ways. Failure to implement
comprehensively is wasteful because all techniques are not used. The danger of contradictory
signals is that individuals are left to re solve contradictions on their own and the unifying power of
a common direction for effort is dissipated in numerous uncoordinated decisions.
Whether an organization seeks improved implementation of its current strategy or must adjust
current implementation techniques to the requirements of a new strategy, the same basic concerns
must be addressed:

• The requirements of the strategy must be defined for groups and individuals.
• These groups and individuals must receive organizational support necessary to fulfill the
requirements.

Strategy definition results from communication of the strategy and explicit discussion of its
implications for various units. This is accomplished through several instruments:

• Leadership which clarifies strategy through word and example

• Structure which divides and groups tasks and defines authority and responsibilities
• Control systems which track progress and identify problems
• Reward systems which motivate individuals to carry out strategy
• Policies and procedures which define the limits within which results must be accomplished
• Information systems which provide the information needed for decision making

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ANNUAL OBJECTIVES

Establishing annual objectives is a decentralized activity that directly involves all managers in an
organization. Active participation in establishing annual objectives can lead to acceptance and
commitment. Annual objectives are essential for strategy implementation because they:
• Represent the basis for allocating resources
• They are a primary mechanism for evaluating managers
• They are the major instrument for monitoring progress toward achieving long-term
objectives
• They establish organizational, divisional, and departmental priorities.

Considerable time and effort should be devoted to ensuring that annual objectives are well
conceived, consistent with long-term objectives, and supportive of strategies to be implemented.
Approving, revising, or rejecting annual objectives is much more than a rubber-stamp activity. The
purpose of annual objectives can be summarized as follows:

Annual objectives serve as guidelines for action, directing and channeling efforts and activities of
organization members.

• They provide a source of legitimacy in an enterprise by justifying activities to stakeholders.

• They serve as standards of performance.
• They serve as an important source of employee motivation and identification.
• They give incentives for managers and employees to perform. They provide a basis for
organizational design.

Clearly stated and communicated objectives are critical to success in all types and sizes of firms.
Annual objectives, stated in terms of profitability, growth, and market share by business segment,
geographic area, customer groups, and product are common in organizations.

Following figure illustrates how the Stamus Company could establish annual objectives based on
long-term objectives. It also reflects how a hierarchy of annual objectives can be established based
on an organization’s structure. Objectives should be consistent across hierarchical levels and form a
network of supportive aims. Horizontal consistency of objectives is as important as vertical
consistency. For instance, it would not be effective for manufacturing to achieve more than its
annual objective of units produced if marketing could not sell the additional units.

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Annual objectives should be measurable, consistent, reasonable, challenging, clear, communicated

throughout the organization, characterized by an appropriate time dimension, and accompanied by
commensurate rewards and sanctions. Too often, objectives are stated in generalities, with little
operational usefulness. Annual objectives such as “to improve communication” or “to improve
performance” are not clear, specific, or measurable.

Objectives should state quantity, quality, cost, and time and also be verifiable. Terms such as
“maximize,” “minimize,” “as soon as possible,” and “adequate” should be avoided.

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Annual objectives should be compatible with employees’ and managers’ values and should be
supported by clearly stated policies. More of something is not always better! Improved quality or
reduced cost may, for example, be more important than quantity. It is important to tie rewards and
sanctions to annual objectives so that employees and managers understand that achieving objectives
is critical to successful strategy implementation. Clear annual objectives do not guarantee
successful strategy implementation but they do increase the likelihood that personal and
organizational aims can be accomplished. Overemphasis on achieving objectives can result in
undesirable conduct, such as faking the numbers, distorting the records, and letting objectives
become ends in them-selves. Managers must be alert to these potential problems.

POOR AND BETTER STATEMENTS OF OBJECTIVES

Poor: To minimize our costs

Better: To reduce our departmental costs by 1 0 percent within the next 6 months

Poor: To increase the quality of our work

Better: To reduce the number of rejects to an average of 5 per month by the end of the current
fiscal year

Poor: To follow up more quickly on all sales inquiries

Better: To follow up on all sales inquiries within 48 hours after the initial contact

Poor: To become a socially responsible company

Better: To hire at least 4 minority employees within the next year and to donate $1 000 to the
United Way campaign

Poor: To increase sales

Better: To increase sales by 20 percent by the end of September of this year

Poor: To upgrade employee morale

Better: To decrease employee absenteeism to an average of 2 days per year per employee" and to
reduce tardiness to an average of 2 days per year per employee by the end of the current
fiscal year

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A STRATEGIC MANAGEMENT MODEL

Different organizations may use somewhat different approaches to the strategic management
process; fortunately, however, most successful approaches share several common components and a
common sequence. Furthermore, the components and sequence can be represented in model form,
as shown in following figure. This model is applicable to both single-business and multi-business
firms. As indicated by the categories listed in the center of figure, the strategic management process
has been divided into five major segments:

1. Analyzing the current status

2. Examining the prospects for the future
3. Setting the future course
4. Putting the strategy to work
5. Evaluating and controlling the strategy

The logic behind this breakdown is as follows. Any organization must first analyze and clearly
understand its current status. Once an organization has a firm grip on its present status, it is in a
position to examine its prospects for the future. After its prospects have been identified, the
organization must set its future course through careful evaluation and choice of alternatives.

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In the next stage, the organization implements the chosen strategy. In the final stage, the
organization evaluates and controls the selected strategy. It should be noted that the strategic
management process is presented as an iterative process, as indicated by the arrows leading from
the bottom of the model back to the top.

The implication is that the process is never-ending and requires constant evaluations, updating, and
revising. The double-headed arrows indicate a two-way relationship: each of the affected variables
has an impact on the other. The four major components and their respective subcomponents are
introduced in the following sections. Furthermore, separate chapters in the book are de voted to
expanding each of the major components of the model.

In terms of our definition of strategic management, the first three stages of the model (analyzing the
current status, examining the prospects for the future, and setting the future course) relate to the
formulation of strategy. The fourth stage (putting the strategy to work) relates to implementation of
strategy. The fifth stage (evaluating and controlling the strategy) relates to the continuous evaluation
of strategy. Strategy formulation, implementation, and evaluation are all equally important for the
strategic management process to be successful. A breakdown in any one of these areas can easily
cause the entire process to fail.

1. ANALYZING THE CURRENT STATUS

Whether strategic management is being instituted for the first time in a new or existing company,
whether a new president is taking over, or whether a student is analyzing an organization from a
case, the organization’s current performance, mission, and strategy must be identified. It is only
logical that these variables be analyzed before the organization’s future is mapped out. As obvious
as this may be, many managers appear to ignore this step. Three groups of variables are depicted as
the major determinants of an organization’s current status: mission, past and present strategies, and
past and present performance.

1.1 IDENTIFYING MISSION

Mission defines the basic purposes of the organization. Ideally, an organization’s mission is clearly
recognized and widely known throughout the organization. Even when this is the case, however, an
organization may wish to alter or redefine its mission. Thus an organization should periodically
evaluate its mission to ensure that the mission is current. In situations where the mission has not
been clearly defined, it is absolutely necessary to do so. In small organizations this normally
requires that the owner or owners define exactly what the organization is trying to produce and/or
sell and what market or markets it is trying to serve. In large organizations these same issues must
be agreed upon by top management and the board of directors.

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1.2 IDENTIFYING PAST AND PRESENT STRATEGIES

It is a well-known fact that Sears, Roebuck and Company embarked on a conscious strategy to
upgrade its quality image in the 1960s. Prior to implementing this new strategy, Sears first had to
identify clearly what its strategy had been in the past. In other words, be-fore a strategic change can
be developed and implemented, the past and present strategies must be clarified.
General questions to be addressed include the following: Has past strategy been consciously
developed? If not, can past history be analyzed to identify what implicit strategy has evolved? If so,
has the strategy been recorded in written form? In either case, a strategy or series of strategies, as
reflected by the organization’s past actions and intentions, should be identified.

1.3 DIAGNOSING PAST AND PRESENT PERFORMANCE

In order to evaluate how past strategies have worked and to determine whether strategic changes are
needed, the organization’s performance record must be examined.
• How is the organization currently performing?
• How has the organization performed over the several years?
• Is the performance trend moving up or down?
These are all questions that the strategist must address before attempting to formulate any type of
future strategy. Evaluating an organization’s performance usually involves some type of in-depth
financial analysis and diagnosis. The present and future performance of an organization is affected
by its present and past strategies and that the strategic management process is a never-ending
process.

2. EXAMINATION THE PROSPECTS FOR THE FUTURE

The first step in looking toward the future is to decide what the long and intermediate range
objectives should be in light of the current mission. However, these objectives cannot be accurately
established without examining the internal and external environments. Thus establishing the long-
and intermediate range objectives and analyzing the internal and external environments are
concurrent processes which influence one another.

2.1 SETTING LONG-RANGE OBJECTIVES

Given the mission, what does the organization hope to achieve and accomplish over the long range?
In establishing long-range objectives, the emphasis is on corporate and divisional-level objectives,
as opposed to departmental objectives.

The first step is to decide which areas of the organization’s business should be covered by
objectives. Common choices include sales, market share, costs, product introductions, return on
investment, and societal goals. Once the areas for objectives have been decided upon, the next step
is to determine the desired magnitudes and associated time frames for accomplishment.

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2.2 CONDUCTING AN INTERNAL ANALYSIS

The basic idea in conducting an internal analysis is to perform an objective assessment of the
organization’s current status. What things does the organization do well? What things does the
organization do poorly? From a resource perspective, what are the organization’s strengths and
weaknesses? Additional areas that should be investigated in-dude the organization’s structure and its
culture. It is usually desirable to analyze structure in terms of the lines of authority, communication
patterns, and work flow. With regard to culture, the first step is usually to identify corporate norms
and mores.
As emphasized earlier, the process of setting long-range objectives is influenced by the results of
the internal analysis. Similarly, the internal analysis should focus on factors affected by the long
range objectives Thus there is circular relationship between these variables.

2.3 ASSESSING EXTERNAL ENVIRONMENT

An organization’s external environment consists of everything outside the organization, but the
focus of the assessment is on the external factors that have an impact on the organization's business.
Such factors are classified by their proximity to the organization; they are either in its broad
environment or in its competitive environment. Broad environmental factors are somewhat removed
from the organization but can still influence it. General economic conditions and social, political,
and technological trends represent common factors in the broad environment. Factors in the
competitive environment, which is also referred to as the task environment, is close to and come in
regular contact with the organization are stockholders, suppliers, competitors, labor unions, and
customers represent members of the competitive environment. The external analysis, like the
internal analysis, has a circular relationship with the long-range objectives. This portion of the
model concludes the reflective part of the strategic management process. Having analyzed its
current status and examined its prospects for th future, the organization is then in a position to
consider its future course.

3. SETTING THE FUTURE COURSE

Setting the future course involves generating possible strategic alternatives, based on the mission
and long-range objectives, and then selecting the best alternative.

3.1 COMPARING STRATEGIC ALTERNATIVES

The goal in this phase of the process is tc identify the feasible strategic alternatives, in light of
everything that has beer done up to this point, and then to select the best alternative. Given the
mission and long-range objectives, what are the different feasible strategic alternatives? The internal
and external environmental analyses also place specific limitations on the feasible strategic
alternatives. For example, the results of at internal financial analysis could severely limit an
organization’s options for expansion. Similarly, the results of an external analysis of population
trend might also limit an organization’s expansion plans. Once a set of feasible alternatives has been
defined, the final strategic choice must be made.

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The evaluation and final choice of an appropriate strategic alternative involves the integration of the
mission, objectives, internal analysis, and external analysis. In this phase an attempt is made to
select the overall or grand strategy that offers the organization its best chance to achieve its mission
an objectives through actions that are compatible with its capacity for risk and its value structure.
Once the grand strategy has been identified, additional sub strategies must then be selected to
support it.
In the case of diversified, multi-industry organizations, comparing strategy alternatives involves
assessing the attractiveness of each of the different businesses as well as the overall business mix.
The next step is to evaluate specific alternative strategies for each business unit. Thus the emphasis
in this phase of the model is on the need for generating strategic alternatives at both the corporate
level and the business level

4. PUTTING STRATEGY AT WORK

The fourth section of the model emphasizes the importance of translating planned strategy into
organizational actions. Given that the grand strategy and supporting sub strategies have been clearly
identified, what actions must be taken to implement these strategies? Strategy implementation
involves every thing that must be done to put the strategy in motion successfully. Necessary actions
include determining and implementing the most appropriate organizational structure, developing
short-range objectives, and establishing functional strategies.

4.1 IMPLEMENTING STRATEGY: ORGANIZATIONAL FACTORS

Not only does an organization have a strategic history, but it also has existing structures, policies,
and systems. Although each of these factors can change as a result of a new strategy, each must be
assessed and dealt with as part of the implementation process.

Although an organization’s structure can always be altered, the associated costs may be very high.
For example, a re-organization might result in substantial hiring and training costs for newly
structured jobs. Thus, from a very practical standpoint, an organization’s current structure places
certain restrictions on how a strategy should be implemented.

The strategy must fit with current organizational policies, or the conflicting policies must be
modified. Often, past policies heavily influence the extent to which future policies can be altered.
For example, it has been the policy of the A. T. Cross Company (manufacturers of the world-
renowned writing instruments) to unconditionally guarantee its products for life. This policy is well
known and has come to be expected by many of the company’s customers. Because of these
expectations, it would now be very difficult for Cross to discontinue its guarantee policy.

Similarly, organizational systems that are currently in place can affect how the strategy might best
be implemented. These systems can be either formal or informal. Examples include information
systems, compensation systems, communication systems, control systems, and planning systems.

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4.2 IMPLEMENTING STRATEGY: FUNCTIONAL STRATEGIES

Functional strategies are the means by which the business strategy is operational zed. Functional
strategies outline the specific short-range actions to be taken by the different functional units of the
organization (production, marketing, finance, personnel, etc.) in order to implement the business
strategy. The purpose of functional strategies is to make the corporate- and business-level strategies
a reality.

The formulation of functional strategies plays a major role in determining the feasibility of the
corporate- and business-level strategies. If sound functional strategies cannot be formulated and
implemented, it may be that the corporate and / or business level strategies need to be reworked. As
the old saying goes, the functional strategies are the point where “the rubber meets the road.”

5. EVALUATING AND CONTROLLING THE STRATEGY

After things have been put into motion, the next challenge is to monitor continuously the
organization’s progress toward its long-range objectives and mission.

• What types of managerial controls are needed to ensure that acceptable progress is being
made?

• Is the grand strategy working, or should revisions be made?

• Where problems likely to occur?

The emphasis here is on making the organization’s strategists aware of the problems that are likely
to occur and of the actions that should be taken if these problems do occur. As mentioned earlier,
the arrows looping back up from this last component of the model indicate that the strategic
management process is continuous and never-ending.

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ANOTHER COMPREHENSIVE STRATEGIC MANAGEMENT MODEL

VOCABULARY OF STRATEGiC MANAGEMENT

1. OBJECTIVE

An objective is a statement of what is to be achieved. Objectives are normally stated in terms of a

desired level of attainment within a specific term frame. For example, one objective might be “to
increase sales revenues to $8 million by the end of the current fiscal year.” Ideally, objectives are
quantifiable, simply stated, and measurable.

Objectives can be classified as either short range or long range. Normally, objectives which have a
time span of 1 year or less are classified as short-range; objectives spanning more than 1 year are
classified as long-range. While many managers use only short range and long range objectives,
some also utilize intermediate-range objectives. In this context, intermediate-range usually means I
to 3 years, and long-range means anything over 3 years.

Objectives can also be classified according to their breadth of influence in the organization. For
example, objectives that apply to the entire organization are called corporate, or organizational,
objectives. Objectives that apply only to a certain division within an organization are referred to as
divisional objectives; those that apply to a certain department within an organization are referred to
as departmental objectives.

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2. GOALS

Many authors and managers use the term “goal” interchangeably with “objective. Others envision
goals as being somewhat broader and having longer range than objectives. Still others refer
narrowly to specific targets as goals. The problem with differentiating between goals and objectives
is deciding just what the difference is. In other words, when does an objective become a goal, and
vice versa? The terms “objective” and “goal” are used interchangeably in general way. .

3. MISSION

An organization’s mission is actually the broadest and highest level of its objectives. Mission
defines the basic purpose or purposes of the organization (for this reason, the terms “mission” and
“purpose” are often used interchangeably). Basically, an organization’s mission outlines why the
organization exists. A mission statement usually includes a description of the organization's

4. STRATEGY

The word "strategy" is derived from the ancient Greek word “strategy,” which connoted the art and
science of directing military forces.” A more recent definition is provided by a 1974 survey which
asked corporate planners what the word ‘strategy’ ‘meant to them. The conclusion of the
respondents was, “It includes the determination and evaluation of alternative paths to an already
established mission or objective and eventually, choice of the alternative to be adopted. In other
words, strategy outlines how management plans to achieve its objectives.

In almost all situations there are many ways in which an objective or a set of objectives can be
pursued. A strategy outlines the fundamental steps—the pathway—that management plans to follow
in order to reach an objective or set of objectives. Strategy is the product of the strategic
management process. Throughout this book, we typically refer to the organization’s top-level or
corporate strategy. However, in reality, strategies also ex ist for individual units or individual
members of an organization. A first line supervisor, for example, may very well formulate strategy
for meeting the weekly production quota.

5. POLICY

A policy is a broad, general guide to action which constraints directs goal attainment. Policies do
not normally dictate what action should be taken, but they do provide the boundaries within which
the objectives must be pursued. Thus policies serve to channel and guide the implementation of
strategies.
.
Policies exist at all levels of an organization. A typical organization has some policies that relate to
everybody in the organization and some policies that relate only to certain parts of the organization.
A policy such as “This company will always try to fill vacancies at all levels by promoting present
employees” would relate to everyone in the organization. On the other hand, a policy which states ‘
‘Salespeople may negotiate up to a 5 percent discount off the suggested manufacturer’s price’ ‘

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relates only to salespeople.

6. PROCEDURES AND RULES

Procedures and rules differ from policies degree of specificity. Policies, procedures, and rules all
seek to limit opportunities for individuals to make bad decisions or take undesired action. A
procedure is a series of related steps or tasks expressed in chronological order to achieve a specific
purpose. Procedures specify in step-by-step fashion the manner in which a recurring activity must
be accomplished. Procedures generally do not allow much flexibility and deviation. A company’s
policy may be to accept all customer returns submitted within 1 month of purchase; company
procedures would outline exactly how a return should be processed by the salespeople.

Well-established and formalized procedures are often known as standard operating procedures, or
SOPs. For example, SOPs may be established for handling customer complaints.

Rules require that specific and definite actions be taken or not taken with respect to a given
situation. Rules leave little doubt about what to do. They permit no flexibility and no deviation.
Unlike procedures, rules do not necessarily spec-ify sequence. For example, “No smoking in the
conference room” is a rule.

Procedures and rules are subsets of policies. All provide guidance in certain situations. The
differences lie in the range of applicability and the degree of flexibility. A no-smoking rule is much
less flexible than a procedure for handling customer complaints, which is likewise less flexible than
a hiring policy.

Examples of organizational policies.

• To distribute at least 50 percent of net earnings to stockholders (e.g., policy of any

organization)

• To accept all returns that is accompanied by a sales slip (e.g., policy of retail store)

• To require a minimum down payment of 10 percent of the purchase price (e.g., policy of a
mortgage company)

• To pay the shipping costs of all goods bought from the company (e.g., policy of a mail order
company)

• To answer all written customer complaints in writing (e.g., policy of a firm’s public relations
department)

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